Craig G. Francis

"Good" Loans, "Bad" Loans - How Do the Banks Decide?

Banks are under pressures today not seen for 80 years. The great Depression produced much of the same credit, banking and business problems of today.  The banks have suffered huge erosion of their capital base by bad loans and run off of deposits and loans.  Their vaults are empty or close to it.  If they lend at all, they are going to lend to those best suited and most likely to repay the loans.

 

Bankers are under serious pressure to make "good" loans and are being strongly advised by the Feds to avoid "bad" loans.  What are bad loans?  Today it is difficult to tell. And the banks have only one product in their inventory: money.  So how is a bank to sell its products with a good return and do so safely?

 

What used to be a good loan 2 years ago could easily be considered a bad loan today.  The recessionary economy has imposed massive pressures on businesses that are game changers even if the banks were healthy with solid capital rations. Even an SBA loan, with its high level of protection, could be deemed a classified loan if it does not meet the much more stringent requirements of the federal oversight of banks.  Thus the bank, reacting in typical fashion, asks itself the question: What is a bad loan?  Potentially, any loan to a small business could be deemed a bad loan.

 

This is not to say the loan is 'bad' per se.  It is seen as presenting a greater risk to the bank and its portfolio than the relatively rare “cream of the crop,” cherry-picked loans that are the most desired loans in the present lending climate.  Even loans with SBA guaranties could be questioned if the loan production and review were less than perfect. The SBA can walk away from its guaranty if the bank is not precise in its processing of the loan.  This has happened in the last year due to poor loan oversight at certain banks.

 

Thus the lender sees the SBA guaranty as not that certain a solution to risk mitigation.  With a smaller capital base, the problems with the economy, and potential questions posed even with an SBA guaranty in place, the banks often times have “paralysis by analysis.”  They can't make a decision because so many decisions can be questioned.  Therefore the best solution is to sit tight on their capital and hope for the best.  But while they are sitting tight, the economy flounders and the small business community’s credit flow is severely curtailed.  This situation produces the unintended consequence of exacerbating the current economic crisis.  Businesses can't grow without capital.  Without capital, businesses flounder and profits are reduced to razor thin margins, and the banks say with certainty that they can't lend to marginally profitable businesses. 

 

Is there a solution to this dilemma?  Yes there is.  And that is the subject of another article.

 

Craig Francis is the creator of  SBALOANSTORE.com and is one of the top 10 commercial USA real estate brokers nationally, with over 27 years of business development industry experience. He has personally produced a BILLION DOLLARS for small business, and was a top producer for Dun & Bradstreet, Bank of Commerce, and Local Development Corporation. Visit SBALOANSTORE.com for more information. Craig Francis is also available to work directly with businesses in the Southern California area.  He can be reached directly at 1-888-666-9722.

Small Business Administration Introduces "Floor Plan" Loan Program

SBA expecting ‘ramp-up period’ for automobile dealer loans

 

On July 1, the SBA began accepting applications from automobile dealers for so-called “floor plan” loans to help these dealers finance inventories.  This is a pilot program that was brought about in response to requests from dealers whose traditional funding sources had dried up.  The current economic situation has caused several floor plan lenders to close existing lines of credit, making it impossible for dealers to continue with inventories.

 

Although the program has its merits, there are also certain policies and procedures that may limit its effectiveness.  The program will run through September 30, 2010, when the SBA will review it and decide whether or not to continue these loans.

 

The administration is rolling out programs like the ARC loan and the auto dealer floor plan lines to help the small business community.  These are designed to augment the very successful SBA programs which have been part of the lending environment for decades.

 

The ARC program has a 100% guaranty by the SBA, while auto dealer flooring lines have a 75% guaranty.  These programs are much needed to help the industries most affected by the economic downturn and recession, which has hit some businesses more than others.  Certain sectors of the economy have virtually no access to credit due to the fear factor of banks, who formerly used to lend to these sectors.  Therein lies the basic problem with the much touted programs and the best-laid plans of the administration.

 

Getting banks to lend in this environment is much like trying to push a rope upstream.  It can be done, but only with great difficulty.   Much will depend on how banks judge “good” and “bad” loans in this new economic climate.  I will talk about that situation in my next article.

Craig Francis is the creator of  SBALOANSTORE.com and is one of the top 10 commercial USA real estate brokers nationally, with over 27 years of business development industry experience. He has personally produced a BILLION DOLLARS for small business, and was a top producer for Dun & Bradstreet, Bank of Commerce, and Local Development Corporation. Visit SBALOANSTORE.com for more information. Craig Francis is also available to work directly with businesses in the Southern California area.  He can be reached directly at 1-888-666-9722.

Congressman Peter Welch Proposes SBA LOAN Increase

Welch's proposal: Express Loan available from the Small Business Administration currently has a cap of $350,000. Welch's proposal would raise that cap to $2 million.

Welch Unveils Plan to Expand SBA Loans

This is a welcome move but again there are still the traditional humps to jump through in order to get and SBA guaranteed loan. Any moves like this help bring attention to the SBA Loan programs for business owners.

I think that categorically there are more baby boomers with a solid credit and financial footing entertaining business ownership. A program like this can definitely draw some attention.

Craig Francis is the creator of  SBALOANSTORE.com and is one of top 10 commercial USA real estate brokers nationally, with over 27 years of business development industry experience. He has personally produced a BILLION DOLLARS for small business, and was a top producer for Dun & Bradstreet, Bank of Commerce, and Local Development Corporation. Visit SBALOANSTORE.com for more information. Craig Francis is also available to work directly with businesses in the Southern California area.  He can be reached directly at 1-888-666-9722.

New SBA Loans are still BANK APPROVED...

SBA stimulus sounds good, but unless it is money directly from the SBA it still has to get the bank's approval and that is the real problem here.  If banks won't lend, then the SBA process is not going to work well.  This is not to say that ALL banks wont participate, but certainly a lot are out of the lending business entirely or are being very selective.

 

I would compare this money hunt being done by the small  business community to something along the lines of a treasure hunt or a scavenger hunt.

Everyone has nearly the same map to find the treasure, but like any map, there is misinformation and misdirection. If the borrower can read past the misinformation and misdirection, (see my free report on SBALOANSTORE.COM about credit culture) then they  may find the treasure, but not as much as they had hoped for.  Plus, if someone else taps the funds allocated, the next borrower gets none.

 

Another analogy is the  scavenger hunt.  We all get directions and clues to what to get along the way and where to find it.  We need all these items to get to the goal of winning the loan race.  If you can't find one or more of the items as you pursue the clues and ask for those items ( READ THIS AS HAVING GOOD CREDIT, A HOME WITH EQUITY, BUSINESS SKILLS, CASH FLOW, DOWN PAYMENT, ETC.), you will never get to the goal of having a loan funded.

 

I read about this all the time for many sources including WSJ, business mags and pubs, emails, the Coleman report, etc.  The snipe hunt leaves the borrowers unsatisfied and chasing illusive loans when they are told by the Obama Admin and SBA that the loans are available (like the ARC loan). Good luck in getting one.  Finding a lender, even with a perfect package, can prove to be an impossible task.

We are faced with lenders being told not to lend and not to make 'bad loans' (completely undefined of course), but to lend to the most risky of borrowers - the Small Business Owner.

 

But this does not mean that a person who needs capital should not work the system. SBALOANSTORE gives the clients unlimited access to lenders on a local, regional, and national level.  The key is using my system, a scanned package, and the list of all the lenders, plus using the SBA itself as the team to help you.  It does not guaranty that the loan will be approved, but it is infinitely better than doing nothing.

Craig Francis is the creator of  SBALOANSTORE.com and is one of top 10 commercial USA real estate brokers nationally, with over 27 years of business development industry experience. He has personally produced a BILLION DOLLARS for small business, and was a top producer for Dun & Bradstreet, Bank of Commerce, and Local Development Corporation. Visit SBALOANSTORE.com for more information. Craig Francis is also available to work directly with businesses in the Southern California area.

Obama Administration Considers Allocating Some Bailout To Small Business and the SBA?

What a great idea!

Obama Administration Said to Be Weighing TARP Money for S.B.A.

By Robb Mandelbaum

While the first SBA Loan bailout idea is geared towards companies in trouble that have an established set of criteria, it has been hard for both borrowers and lenders to connect the dots. In addition, bankers, for the most part, are gun shy.

However, banks are loaning money because it is their business to do so. It would make sense that at some point banks would start loaning money to job-creating small businesses to stabilize these companies.

This second wave of funding, directed at SBA, would be smart considering the trend that's happening right now in entrepreneurship. The recession is creating market share and net categories of business. It would be wise to invest in the up and coming business models instead of trying to keep older, possibly less successful, models intact.

Are you considering an SBA LOAN? Have you applied for the SBA ARC Loan? PLEASE COMMENT.

Craig Francis is the creator of  SBALOANSTORE.com and is one of top 10 commercial USA real estate brokers nationally, with over 27 years of business development industry experience. He has personally produced a BILLION DOLLARS for small business, and was a top producer for Dun & Bradstreet, Bank of Commerce, and Local Development Corporation. Visit SBALOANSTORE.com for more information. Craig Francis is also available to work directly with businesses in the Southern California area.