SBA - Loans Down & Delinquencies Up

SBA loan volume and dollar amounts have for both the 7a loan and 504 loan programs have declined for fiscal year 2008 while loan delinquencies have grown steadily since last summer according to The Coleman Report. The Coleman Report was an attendee for Erik Zarnikow's remarks at the America East Conference for SBA lenders. Erik Zarnikow is the Associate Administrator for Office of Capital Access at the SBA.

Here are a few excerpts from Zarnikow's speech as noted in The Coleman Report with my thoughts in between.

"Most of the decline in loans is smaller loans typically used for working capital purposes. We are seeing a fairly steady demand for loans used to expand businesses, buy equipment, buy real estate, and buy fixed assets. "

In my opinion, the 7a Express product is a great financing solution for small businesses needing working capital as it's a revolving line of credit. In this current economic environment, working capital is more heavily in demand than expansion capital.

Some of the lenders with whom I work have been unwilling to offer the 7a Express solution or are pulling back. Why? I'm guessing it is because the SBA guarantee level is only 50% compared to 75% and higher on the 7a term loan product. I have never understood the rationale for this lower guarantee. The revolving nature of the product and the lower guarantee likely makes it more difficult if not impossible for the lenders to sell the loans in the secondary market. Lower income potential and greater risk - not difficult to see why SBA working capital loans are more difficult to obtain.

"When we talked with the lenders we found that they pushed the credit box too far. The losses were bigger than expected and they pulled back."

After a period of easy money, the wheelbarrows of money are no longer on the front porch. The pendulum has now swung to tighter underwriting criterion. The last credit crunch for business lasted three years (1989-1992) – I don’t expect the current version to go away quickly. Remember, if you’re not bankworthy, there are other financing solutions that are available including asset based revolvers, factoring, purchase order financing and equipment leasing. Some are only marginally more expensive than bank debt. Others – well, it is a risk versus return formula.

"As the economy softens, we are seeing more businesses have cash flow problems. In the SBA 7(a) loan program, delinquencies have climbed to 2.77%. Delinquencies have climbed to 2.17% in the 504 loan program. Overall, delinquencies have continuously climbed since the summer of 2007, which is reflected in the overall commercial lending portfolio. "

In November, I noted that lessee payment delinquencies of greater than 90 days had almost doubled in the last 15 months. An increase in SBA loan delinquencies should not be a surprise to anyone.

Need help finding the right lender or telling your story the right way? Read "Matchmaking for Business Loans" and give me a call!

Tags : SBA , 7a loan , 504 loan , working capital , Coleman Report , Erik Zarnikow

SBA Loans - Gas Stations, Car Washes, Restaurants

Had lunch today with a nationwide SBA preferred lender that loves to provide SBA loans for gas stations, car washes and restaurants.

SBA loans can be approved in as little as 7 to 10 business days from receipt of a completed application with appropriate supporting information.

If the transaction isn't a good fit for an SBA 7a or 504 loan, this lender can also provide conventional business loans in some instances.

If you're having trouble finding SBA loan for gas stations, car washes and restaurants, read "Matchmaking for Business Loans" and give me a call!

Tags : SBA , 7a loan , 504 loan , gas station , car wash , restaurants

Lunching with Lenders

In the last week, I have been hosted for lunch by a bank president, an SBA lender, a purchase order financier and an asset based lender. This coming Friday, another bank is hosting lunch at an open house.

Their message - neither their appetites for loans or lunch have subsided with the credit crunch.

For the small businesses seeking a loan - there is money out there. There are lenders seeking loan opportunities for deals of a variety of sizes, industries and risk profiles.

You just have to know which lenders are looking for a particular type of deal and what questions need to be answered to obtain approval.

Need help finding the right lender or telling your story the right way? Read "Matchmaking for Business Loans" and give me a call!

Tags : bank loans , credit crunch , purchase order financing , SBA loan , asset based loan

Banks Getting Pickier; Borrowing Costs Increase

Even in a market of declining benchmark interest rates such as prime rate, the cost of borrowing has been increasing for even investment grade credits.

On Thursday, The Wall Street Journal (subscription required) reported that banks are prioritizing deals and have become more reluctant to tie up their balance sheets for borrowers with whom they don't have important relationships.

For companies that do get financing, the banks are apparently increasing the portion of the interest rate reflecting the "risk premium" driving overall interest rates higher.

Credit crunch, higher cost of money and a lot less "transaction only" lending is the same message I've been hearing from all the lenders with whom I speak.

If you are a small business, don't be surprised if your banker delivers the same message when you ask for a loan. Go well-prepared!

Need help finding the right lender or telling your story the right way? Read "Matchmaking for Business Loans" and give me a call!

Tags : Wall Street Journal , credit crunch , business loans , small business

Microsoft Increases Vendor Financing to Small Biz

Credit crunch for small business? No problem if you need to buy Microsoft products.

According to The Wall Street Journal (subscription required), Microsoft has announced it plans to increase its vendor financing to small businesses by as much as 60% in 2008 to $1.25 billion.

Microsoft offers an array of business loans between $100 thousand to $500 thousand - a "sweet spot for small businesses".

No doubt Microsoft will be extending these business loans in some cases to marginally creditworthy companies. Further, there's very, very little collateral in software. If the loans go into default, there's not much Microsoft can do to recover. Microsoft expects its bad debt expense will increase with its small business loan volume.

The article does not indicate what level of interest rates Microsoft will charge on these small business loans. If you're offered financing by Microsoft, check the terms and then go re-read my posting, "0% Equipment Financing - Is it Right for You?".

Need help finding the right lender or telling your story the right way? Read "Matchmaking for Business Loans" and give me a call!

Tags : Microsoft , small business , loans , vendor financing , Wall Street Journal

Angel Funding Increases in 2007

The Center for Venture Research just announced that angel investments in 2007 increased slightly in 2007 to $26 billion. The number of deals funded by angels increased by 12 percent over 2006 resulting in an average investment of approximately $455 thousand.

Though the mix changed slightly, software, healthcare and biotech were again the big winners collecting about 58 percent of all angel investments.

Here are two things which caught my eye:

• Angel investors are getting increasingly picky about their investments. The yield (acceptance) rate is down from 23% in 2005 to 14% in 2007. The yield rate is the percentage of investment opportunities brought to the attention of angel investors resulting in an actual investment.
• Like most investors, angels are hoping for a big payout at exit. Mergers and acquisitions represented 65% of angel exits. IPOs represented 4% of angel exits. Bankruptcies accounted for 27% of angel exits. Yikes! Could explain why angels are getting pickier about their investments!

Good luck in finding an angel. Check out the Angel Capital Association.

And once you do find your angel, consider using secured debt financing where possible to leverage your investment and minimize the dilution that would result from additional equity raises.

Need help finding the right lender or telling your story the right way? Read "Matchmaking for Business Loans" and give me a call!

Tags : angel investor , venture capital , Center for Venture Research , Angel Capital Association

SBA Takes a Breather on New Women's Centers

Today's Los Angeles Times shares a great story about how the SBA's Women's Business Center was instrumental in the success of woman owned business.

The CHARO-SBA Women's Business Center in Riverside helped Kathy Macias with a free business training class giving her knowledge, skills and confidence to grow her auto repair shop which now employs four. Women's Business Centers provide help through its programs with financial management, procurement training, marketing and technical assistance.
The SBA budget for fiscal years 2007 and 2008 included funding for 25 new women's business centers bringing the nationwide total to 116 centers.

Having served over 150,00 clients nationwide at the women's business centers, many will feel dismay that the SBA's 2009 budget included no funds to open additional women's business centers.

But budgets are tight and it's an election year. One never knows what will be the final result.

Need help finding the right lender or telling your story the right way? Read "Matchmaking for Business Loans" and give me a call!

Tags : SBA , Women Business Centers , CHARO

Merchant Cash Advances - Inc Mag Not a Big Fan

Merchant cash advances. Inc. Magazine in its April 2008 edition calls it the business equivalent of a payday loan for small businesses who need money fast and have no other options. The magazine reports that there are over 50 merchant cash advance providers providing small businesses about $700 million a year.

It's one of the fastest growing sources of small business loans as evidenced by the announcement today by AdvanceMe, a wholly owned subsidiary of Capital Access Network, that it has just closed on a $140 million borrowing facility with several sources including Brown Brothers Harriman, Wells Fargo Foothill and Fifth Third Bank. This money will be used to fund AdvanceMe's growth.

The article makes clear that Inc. Magazine (or at least the author) is not a big fan of merchant cash advances.

Here are three reasons cited as to why not.

It's very expensive. In my own discussions with merchant cash advance providers, I calculated an effective rate of interest starting at 35 percent per year.

Some providers will advance as much money as possible, regardless of the borrower's ability to repay the loan.

Finally, according to one industry insider, the word "unscrupulous" comes up a lot in the business. You wouldn't believe the number of spam comments I get on this website from merchant cash advance providers.

Want a second opinion? Check out this article from Forbes Magazine.

Need help finding the right lender or telling your story the right way? Read "Matchmaking for Business Loans" and give me a call!

Tags : merchant cash advance , AdvanceMe , Inc. Magazine , Forbes Magazine

Greenwich Associates - Business Credit Tightens

Today's Wall Street Journal (subscription required) reported credit is getting tighter and more expensive according to a study released last week by Greenwich Associates.

The survey was based on a February poll of 300 large companies in Asia, Europe and the United States.

On the surface, the conclusion of tighter and more expensive credit doesn't surprise me.

What does surprise me is that the study reaches the conclusion the credit crunch is hardest on "smaller" companies and those with below investment grade credit ratings.

Now I admit to not having seen a copy of the study. But exactly which of those 300 large companies are considered "smaller"? Would that be the small "large" companies with only $500 million of revenue or only $5 billion of revenue?

Are you a smaller company that needs help finding the right lender or telling your story the right way? Read "Matchmaking for Business Loans" and give me a call!

Tags : Wall Street Journal , Greenwich Associates , credit crunch , small business

Collecting Receivables More Difficult

I was on a conference call yesterday with an office furniture dealer that I am assisting with their transition from a bank to an asset based lender. Senior management of the company had complete command over the details of their accounts receivable aging report and answered each question about specific debtors with ease.

While some businesses do indeed watch their receivables like a hawk, apparently that's not the case across corporate America. Many companies are reporting more and more difficulty in collecting receivables. CFO Magazine reports that the National Association of Credit Management Credit Managers Index for March fell to its lowest level since 2002.

Companies could have avoided some of their newfound credit problems if they had taken a closer look at their risk portfolios, according to Pam Krank, president of Credit Department Inc., a credit-management company.

As I've said in the past including just recently, if a business is extending credit terms, you're really a lender. Not necessarily a good place to be if you don't know what you're doing. Good credit and collection policies are an absolute necessity as it becomes more likely that a recession and credit crunch will be having an impact on your customer's ability to pay your invoices when due.

If cash flow gets tight because you're acting like a lender and you need a business loan secured by your accounts receivable, read "Matchmaking for Business Loans" and give me a call!

Tags : CFO Magazine , accounts receivable , NACM , Credit Managers Index , credit and collections

Bankruptcy Lawyers - A Growth Sector

The Wall Street Journal (subscription required) reported earlier this week that more and more law firms expect bankruptcy law to be the fastest area of growth in the next 12 months.

Why?

One reason offered is that the credit crunch is making it hard for troubled companies to obtain business loans.

Having a hard time obtaining a business loan? Need help finding the right lender or telling your story the right way? Read "Matchmaking for Business Loans" and give me a call!

Tags : Wall Street Journal , credit crunch , business loans , bankruptcy