SBA Franchise Loan Default Rates for 2008

Defaults on SBA 7a loans for franchises have soared by 52% in the latest fiscal year according to The Wall Street Journal (subscription required). In dollar terms, the loan losses totaled $93.3 million, a 167% increase over the prior year.

Here's the list where at least 11 franchisees defaulted on SBA 7a loans during fiscal year 2008 in order of the number of defaulted loans: Quiznos, Cold Stone Creamery, Subway, Curves for Women, Planet Beach, Aamco Transmissions, CiCi's Pizza, Carvel Ice Cream, Domino's Pizza, Dream Dinners, Taco Del Mar. Quiznos franchisees had the greatest number of loan defaults at 108 bad loans.

As a percentage of the total number of SBA 7a loans, these franchisees were not the worst offenders. The worst offenders based upon percentage of SBA guaranteed loans to franchisees to default over the last eight fiscal years included: Mr. Goodcents Subs & Pastas (55%), Philly Connection Sandwiches (51%), Cottman Transmission (49%), All Tune & Lube (47%), Cornwell Quality Tools (42%), Carvel (41%) and Blimpie (41%).

I'm sure someone at these franchisors has a really good reason why their franchisees may not be good at repaying their debts. The bottom line is that SBA lenders will be thinking twice before taking one of these deals to their investment committees.

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

Tags : credit crunch , SBA loans , 7a loans , franchise loans

The Crack Cocaine of Community Banks

With default rates rising on commercial real estate loans, RBC Capital Markets recently forecast that more than 1,000 U.S. banks may fail in the next three to five years. Most of these bank failures will occur at banks less than $2 billion of assets.

In The Minneapolis-St. Paul Business Journal, it was just noted that "commercial mortgages are being closely watched as another source of pain for the nation’s bankers. At the height of the credit bubble, one industry observer said commercial real estate loans had become the crack cocaine of community banking, reflecting the pace of growth some were achieving with such loans."

Crack cocaine?

Over two years ago, I wrote that bank regulators had issued new guidelines impacting many small and mid size banks to offset concern that too many bank loans were secured by business real estate creating an undue level of risk in bank loan portfolios. Their other concern was whether or not the banks had enough capital to withstand the losses that might result from defaults on real estate loans.

The FDIC shut down 25 banks in 2008 and 9 banks thus far in 2009. It will interesting to see how many more banks bite the dust this year and how many of those were hooked on "crack cocaine".

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

Tags : commercial real estate loans , community banks , bank failures , real estate bridge loans

Survey Says

The January 2009 Senior Loan Officer Opinion Survey on Bank Lending Practices was released on Monday. No big changes or surprises in my mind.

Over 65 percent of domestic banks reported having tightened lending standards on commercial and industrial (C&I) loans to small businesses and large and middle-market firms over the past three months. Down a bit from October, but not in a material way.

About 80 percent of domestic banks reported having tightened their lending standards on commercial real estate loans over the past three months. The fallout from the implosion of the CMBS market is becoming more evident every day. It's unlikely there will be sufficient lending capacity to re-finance the over $150 billion of commercial real estate mortgages maturing in 2009.

And as I noted last quarter, the survey also reports that interest rate floors are becoming more prevalent and loan to value ratios are decreasing.

The conclusion - credit is still tight if you're not a creditworthy borrower with lots of deposits.

The bankers with whom I speak on a regular basis confirm the status of the current lending environment. There's not yet been a push to increase business loans or commercial real estate loans to new clients notwithstanding the TARP plan. In fact, many of these loan officers are focused on gathering in new deposits or taking care of the non-borrowing needs of existing clients.

What's the next event to watch? It's not the new stimulus bill working its way through Congress though this will be critical to the economy.

Rather, watch when business borrowers start filing financial statements with their lenders for the fourth quarter. Expect many borrowers to post fourth quarter and full year 2008 losses and trip financial covenants causing a new onslaught of headaches for lenders.

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

Tags : Federal Reserve , business loans , credit crunch , asset based loans , accounts receivable , hard money loans , real estate loans

Kiss and Say Goodbye

I'm gonna miss you, it's no lie.
Let's just kiss and say goodbye.
"The Manhattans"

The SBA said losses from loans made through its lending programs more than doubled in 2008 reaching nearly $1.3 billion according to The Wall Street Journal (subscription required).

Potentially adding fuel to the fire, the economic stimulus bill making its way through Congress includes $735 million for the SBA to stimulate lending to small businesses.

The provisions for the SBA stimulus include larger loan limits, an increase in the government guarantee percentage, a reduction in borrower paid guarantee fees and possible direct lending by the SBA if all other lenders decline the loan.

No word on whether the SBA will instruct lenders to relax their underwriting criteria and give loans to any borrower with a pulse. Isn't that how we got into this predicament in the first place?

I suppose some will say this bailout of Main Street is no worse than a bailout of Wall Street. I just hope that some judgment is used before piling more debt on borrowers who can't repay.

If not, who wants to pucker up first and kiss that stimulus money "goodbye"?

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

Tags : SBA , 7a loan , 504 loan , small business , SBA loan