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

Financing - What are they Looking For?

The anxiety levels of businesses seeking loans and financing seem to be a bit higher as of late.

I thought I would share with you ten of the more frequently used search terms that have resulted in recent visits to my blog since the beginning of August...

• SBA


• Patriot Express lenders


• companies with cash flow problems


• companies with cash flow issues


• super fast factoring loans


• will a lender give me a loan with a tax lien


• cash flow squeeze


• cash flow for staffing companies


• need a lot of money fast


• stupid bankers


• minority loan programs

I hope they all found what they were looking for...

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 , Patriot Express , factoring , cash flow , staffing companies , tax lien , minority loan programs , stupid bankers

What's on Your Desk?

The last days of August are often slow in the deal world - seems all the funding sources and other deal makers are enjoying those last few days of summer at the beach.

That being said, I'm starting to feel the impact of the turmoil in the credit markets from these last few weeks. My phone is ringing more and my blog is seeing more hits from anxious borrowers.

Here's a partial look at what's on my desk...

• We'll start with a success story. Just arranged a factoring facility for a company in the remote surveillance business. They were landing contracts with big name clients, but their balance sheet and short time in business didn't support a bank line of credit. They needed money fast - from start to finish, the funding solution was completed in less than a week. The CEO commented that the interest rates were below what he expected!


• Was working with a prospect that wanted me to find them either a less expensive factoring facility or an asset based revolver secured by accounts receivable and inventory. In my due diligence process, I discovered a potential problem with past due payroll taxes. I've offered an introduction to Peter Stephan (who helped me write "Yeah, I'm the Taxman") who can advise them on how to resolve the tax problem.


• I'm pre-screening a loan for a company who has reasonably strong cash flow but is challenged by a significant customer concentration issue and a lack of collateral either inside or outside the business. Wish me luck on this one.


• I've written posts on how important it is to have a strong relationship with one's lender. I've been recommended to a prospective borrower seeking to borrow a large sum of money to fund a real estate acquisition. He told me that a loan officer at a bank which had previously loaned him the funds to acquire real estate declined this new financing opportunity while providing a reason that didn't make sense. He did not have a strong relationship with this banker. My own contact at the bank did a little digging and then admitted they had dropped the ball. Know your lender and build a real relationship.


• I've recently been introduced to a company which provides homeland security solutions. Request #1 is to find them a lower cost factoring solution than they currently have. If their accounts receivable are reasonably clean, it shouldn't be too big a challenge to find them a more cost effective source of factoring. Request #2 is to create a vendor financing program so they can more easily sell their products to municipalities and other government agencies that often cannot pay in full for assets acquisitions. This could be a fun assignment.

As we head into the Labor Day weekend, hope your summer has been a great one.

And if 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 : cash flow , bank loan , factoring , accounts receivable , equipment leasing , municipal leasing , payroll taxes , vendor financing

Business Bankruptcy Rates Continue to Rise in 2007

This news blurb on business bankruptcy filings just arrived.

The number of U.S. business bankruptcies continues to rise in 2007, as the second quarter filings showed yet another dramatic increase in the number of businesses seeking protection from creditors, accounts receivable insurer Euler Hermes reports.

According to the U.S. Bankruptcy Courts, 6,705 businesses declared bankruptcy in the second quarter of 2007. This number shows a series of upward trends, including:
* A 7% increase over the first quarter of 2007
* A 38% year-over-year increase from the second quarter of 2006
* A 45% increase for the first half of 2007 in comparison to the first half of 2006

"Businesses today are facing serious headwinds, including a slowing economy and an increase in the cost of doing business," said Euler Hermes ACI chief economist Daniel C. North, who earlier this year forecasted a 51% increase in business bankruptcies for 2007.

North has said that the three most serious issues remain the effects of increased energy, raw material, and labor costs; the effects of monetary policy tightening by the Federal Reserve in 2004-2006; and the "decimated" housing market and its effects on consumers and businesses.

The housing market's recent effects on the financial markets have brought the seriousness of the situation to light, but North has been tracking -- and predicting -- the economic impact for nearly a year.

"What first tipped me off was when median prices on existing homes fell for 10 consecutive months on a year-over-year basis, which is an unprecedented event since house prices almost never fall; they have never fallen for more than two months in a row in the 38 years that records have been kept," he said. "This is an obvious sign of a rapidly deflating asset bubble, the effects of which will continue to be felt for some time to come."

According to the Euler Hermes business failures forecast, a return to 30,000 business bankruptcies is expected in 2007. This follows a spectacular, but one-off, reduction in business failures in 2006, when the number of corporate insolvencies dropped by 50% due to a 2005 change in U.S. bankruptcy legislation.

North said the disappearance of the impact of the change in legislation, coupled with the slowing economy and reduced profits, will bring the bankruptcy numbers to "more normal levels."

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

Tags : bankruptcy , Euler Hermes , working capital , business loans

Wall Street Journal Highlights Factoring

In today's special Small Business section, Richard Gibson of The Wall Street Journal writes about factoring in an article entitled Fast Money.

Gibson focused on a lot of the same points about factoring that you've been reading about right here...

• Factoring of invoices is a great tool for businesses that need a lot of money and fast.


• Factoring is a great tool for companies that don't qualify for bank financing because they've been in business for a very short period of time or the business has flaws in its credit profile.


• Paying the higher cost of factoring is often preferable to selling a part of the company.


• Factoring of invoices is easier to obtain than bank financing and is considered by some to be less intrusive.


• A factor can save a company the overhead cost of internal staffing for credit screening and bill collection.


• The cost of factoring can be reduced by using the cash flow to take advantage of early pay discounts offered by one's own vendors.

Also pointed out in The Wall Street Journal article, not all factors are alike. Ask around, check references and negotiate for the best rate.

Need help finding the source of factoring? Read "Matchmaking for Business Loans" and give me a call!

Tags : factoring , accounts receivable , Wall Street Journal , working capital , cash flow

Top 5 Bank Leasing Companies

Fresh from the August issue of a magazine for the leasing industry, here's the top five banks with the largest dollar increases in 2006 in equipment leasing activity.

1. Bank of America Leasing
2. Wachovia Equipment Finance
3. National City Commercial Capital Corporation
4. Key Equipment Finance
5. Regions Equipment Finance

According to the survey, these five banks closed over $21.5 billion of new leasing business in 2006.

Again, this survey includes bank owned leasing companies only thus excluding big industry players like GE Capital and CIT. I'll fill you in when the industry numbers are published which includes all types of equipment leasing funding sources.

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

Tags : equipment leasing , leasing , Bank of America , Wachovia Equipment Finance , National City Commercial Capital , Key Equipment Finance , Regions Equipment Finance

Capital Crunch - Should Small Business Worry?

The volatility in the capital markets over the last few days have been nothing short of astonishing. Today's announcement by the Federal Reserve to reduce the discount rate enabled the stock market to break its string of daily losses. What's the impact on the typical small business and its ability to obtain a business loan?

Probably not much.

For the typical small business borrowing money tied to the Prime Rate, you may have to sit tight until September 18th when the Federal Reserve has its next scheduled meeting of the Federal Open Market Committee to consider adjusting the target for the Fed Funds Rate which would have direct impact on the Prime Rate.

By the way, I just finished reading an email which crossed my desk from the Senior Economist at Wells Fargo Economics, Scott Anderson. It addresses both the cost and availability of business credit in general.

Anderson says that while the overall cost of credit has only increased moderately, the cost of credit for all but the most risky consumers and businesses is not yet restrictive.

As for the availability of credit, Anderson writes that the latest senior loan officer survey from the Federal Reserve shows that banks are tightening credit standards across a broad spectrum of consumer and business loans, but have not yet hit the emergency brake.

So until September 18th, enjoy the ride.

If you're not enjoying the ride and need help finding the right lender or telling your story the right way, read "Matchmaking for Business Loans" and give me a call!

Related Tags: accounts receivable, prime rate, business loan, bank loans, Wells Fargo, Federal Reserve