Thursday, August 30, 2007

Small Biz Credit Crunch: Will SBA Save the Day?

The August 29th LA Times explores whether or not the SBA will step up and support small business loans if the banks tighten credit.

Here are the highlights:
  • There's no agreement on whether or not there is currently a credit crunch. But there appears to be agreement that banks and other lenders are tightening their credit criterion for approving a business loan.

  • The surge in SBA loan volume is being driven in part by the challenge small business owners are facing when trying to tap their home equity to fuel their business working capital needs. No surprise here - I wrote about this concern a year ago.

  • The approval process for SBA loans focuses more on cash flow than collateral. Still, it's probably not a good idea to show up at the bank without any collateral. Know your three sources of repayment!

  • SBA loans are not cheaper financing and if you're not well prepared, the extra documentation requirements could be very time consuming.
  • Read the fine print. If you miss a payment, the bank is going to first come after the business borrower.

In the event the SBA doesn't jump in to save the day for every needy business owner, there are other business loan options for the small business at attractive rates.

Today, I visited with Nestor Correa of Pacific Coast Regional (PCR), a small business development corporation. PCR works with banks throughout Southern California to provide a variety of small business loans supported by the state of California. Some of the microloans are actually provided through the SBA microloan program and are available nationwide by other intermediaries. Don't be discouraged if you don't live in California.

These business loans supported by PCR range from microloans to larger loans of up to $500 thousand. The rates are typically fixed rate and the pricing is competitive if not cheaper than SBA guaranteed loans. A FICO score as low as 600 is not an obstacle for approval. Startups, however, need not apply. The documentation requirements are a bit less stringent in some cases resulting in a faster decision process. While the PCR will accept "best available" collateral, don't come knocking on their door if your business doesn't have the cash flow to support repayment of the loan.

Don't qualify for any of these loan programs, but your business has purchase orders, accounts receivable, inventory, equipment or real estate? Read "Matchmaking for Business Loans" and give me a call!

Tags : SBA , LA Times , Pacific Coast Regional , purchase order financing , factoring , accounts receivable , equipment leasing , business loans , credit crunch

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