Craig G. Francis

What Do Banks Want?

Over the past few months we have been more focused on the political side of small businesses and the economy, but now it’s time to get back to the basics of SBA loans. Just what is it that banks want to see from a prospective loan client? How do we get inside the head of the person across the table, and through him or her into the mind of the bank itself? What steps can the business owner take to be more prepared to deal with the regulations and requirements of a lender?

First, and most important, the banks will want to see documentation on everything - and I do mean everything. So the first step in your SBA loan adventure is getting every last detail down on paper - or at least in a file that can be printed out later. Job hunters are encouraged to create a portfolio that details all of their abilities, experience, and awards; the prospective loan applicant would be well-advised to do something similar for his or her business. You want to give the bank a full picture of your business’ successes and projections, especially if you are among the thousands who have taken a beating during the economic downturn. Banks may be hesitant to lend to businesses that have had some cash-flow issues over the last two years, but having a strong history prior to that and good projections for the future can help offset that problem.

Now, what do banks want to see in your business portfolio? First of all they want to see the 3-Cs: Credit, Cash Source, and Collateral. Do you have a good credit history, or at least a connection to someone who does, such as a partner or spouse? If your credit score is below about 700 you will probably have some difficulties convincing the bank to take a chance on you. The lender is also going to want to know where your share of the cash will come from. Yes, the bank is going to expect you to put your own neck into the noose as well - they aren’t going to take any risk if you won’t. Finally, what sort of collateral do you have to put up against the value of the loan? Usually this means your house or some other valuable property that the bank can attach if the loan goes bad. Again, the bank isn’t going to take any risk that it can’t mitigate. Depending on the lender this collateral requirement can be as much as 100% of the value of the loan. Along with these three important elements comes a related point - your Liquidity. A bank is going to want to know that you will still have enough money to live on for the first year in case your business projections don’t pan out. If your lifestyle over the past few years indicates an overly free-spending personality, you will probably be turned down unless you have large cash reserves to live off while your business grows.

In addition to the 3-Cs the bank will want to know it is lending to someone who has a clue about business. Starting or expanding a business, particularly at this time, is risky but banks want to know that you have done your due diligence, that you have some experience in your field and, particularly for new business owners, in some sort of management. Here is another point where your business portfolio can be essential. Does it show that you have successfully managed at least a department or division if not a company? Does it reflect strong knowledge in your planned field of endeavor? Trying to jump from a retail sales position to owning a high-tech start-up is not a move that many banks will feel comfortable with.

One final point that banks want to know, and this is based primarily on your business projections, is the ability of your business to pay back the loan. Generally banks want to see a projection of 1.25 net profit over loan payment to consider going forward. This means your business needs to be bringing in sufficiently more than the cost of the loan on a monthly basis. A start up may be given up to six months to show this, but a business purchase or expansion will need to have these numbers right away. For many businesses this is the single biggest factor in being denied a loan of any type. The advantage right now is that the SBA’s 90% guarantee is back in force, which can make a difference to a lender who might be on the fence about a loan.

The best move any business owner can make before applying for a loan is to sit down with a broker who has experience in the SBA loan market. Getting the straight story can make the difference between a successful loan application and a denial. It can also possibly identify other options in addition to a loan. With over thirty years of experience in the field, I can provide a frank analysis of the likelihood of your business being approved for a loan. You can sign up for two complimentary reports and I will contact you to set up a time to discuss your needs.

Craig G. Francis is the owner of Francis Financial and The SBA Loan Store. He has been a top producer of SBA Loans since 1981, and has worked with Dun & Bradstreet and Bank of Commerce. Craig Francis has the expertise to steer clients through the often confusing rules and regulations associated with SBA Loans, having helped over 2,000 businesses acquire over a billion dollars in loans. He can be contacted through CraigGFrancis.com, SBALoanStore.com, on LinkedIn, or at 888-666-9722

Looking for Bright Spots

There seems to be some good news in the economy these days, but we are far from anything like a real recovery as of yet. And there are still dark clouds on the horizon that need to be handled before they hit. But first, a look at some of the bright spots and what they can mean to business owners.

A new report in the Huffington Post indicates that small business lending is on the upswing. The report, based on numbers released in the Thomson Reuters/PayNet Small Business Lending Index, indicates that the volume of small business borrowing rose 15% in August and another 16% in September to the highest level in the past two years. Of course the numbers are still far behind the highs of 2007, but at this stage any good news is welcome. On top of this, and perhaps in some ways more important, is the fact that delinquency rates have fallen. Although increased borrowing could indicate some businesses are doing all they can to hold off the wolves, decreased delinquency does mean that more businesses are doing well enough to at least keep even with their obligations.

Another bit of positive news, this also from Reuters, is the report that international trade and employment numbers both improved this last month. According to the story, job growth in the private sector was the best since April and the number of new jobless claims dropped from the previous week. Although both of these are encouraging, the fact that there were still over 400,000 people filing first-time claims means we still have a long way to go. There are still over 4 million Americans receiving unemployment assistance, which also means that there are likely many thousands who have given up looking and probably tens of thousands working but making less than they need to make ends meet.

A third, and perhaps more important, bright spot is the gains made by business-friendly politicos in the midterm elections. Surveys and anecdotal reports indicate that small business owners are generally encouraged by the Republican gains in the House and Senate, although they would like to see real results before giving a full thumbs-up to the new Congress. And we still have nearly two months of the lame-duck Congress to deal with and no guarantees that it will do anything productive before it goes away.

Overall there is movement in the right direction, albeit slow and tentative. If the promised gains come in there should be more confidence in the small business community, which will translate into growth in the economy and, perhaps, the beginning of a real recovery rather than the paper one the Obama Administration has been insisting on. As we move forward, this is a good time to consider the benefits of an SBA loan for your business. The renewed incentives on loan guarantees and fees are currently only set through the end of the year, again with no clue as to the future. But there are other improvements in the 7(a) and 504 programs that will not end as quickly. If you would like some straight talk on what an SBA loan could mean to your business, contact me at SBALoanStore.com. You can also sign up for two complementary reports.

Craig G. Francis is the owner of Francis Financial and The SBA Loan Store. He has been a top producer of SBA Loans since 1981, and has worked with Dun & Bradstreet and Bank of Commerce. Craig Francis has the expertise to steer clients through the often confusing rules and regulations associated with SBA Loans, having helped over 2,000 businesses acquire over a billion dollars in loans. He can be contacted through CraigGFrancis.com, SBALoanStore.com, on LinkedIn, or at 888-666-9722

 

Change That We Need

The fact that I am no strong supporter of the current administration is probably no news to regular readers of this blog. But with the elections tomorrow, I felt the need to share some small business-related points regarding the direction the government has taken, and why I feel we need to make our own version of “Change” known.

Several times I have read articles and editorials alluding to the idea that the Obama administration is less than business friendly - in fact, according to some it is downright business-hostile. This can be seen in a number of the steps that have been taken since President Obama took office in January, 2009. Not all of these have been initiated at the executive level, but the support has been more than clear.

First, let’s look at what President Obama likes to tout as one of the signature pieces of legislation during his time in office: Obamacare. This little piece of legislation is riddled with hidden taxes and rules that will severely impact small businesses. One of the earliest to be identified was the new requirement that all transactions over $600 would require a 1099 form to be filed. This is an annoyance for large businesses with large budgets and large accounting departments. For small businesses with small budgets and usually no accounting department beyond a bookkeeper it is disastrous. Keeping up with this rule will require business owners to choose among several unpleasant options: spend more of their own time doing paperwork that does nothing to improve the bottom line, hire more people in a time when most small businesses have had to cut back just to survive, or figure out a way to spend less than $600 with any one vendor. An additional poison pill in Obamacare will require companies to report the health care they provide to their employees as if it were actual income. This not only places another layer of reporting on the backs of businesses, it is a serious blow against those hard-working Americans who are doing their best to stay off the unemployment rolls and in jobs. There may very well be workers who see unemployment and Welfare as a viable alternative to being hit with higher tax brackets due to money they never see.

Another daunting issue is Congress’ failure to deal with the soon-to-expire tax cuts from the Bush administration. President Obama and the Democrats want to “punish” those wealthy taxpayers who make over $250,000 in order to fund their social-manipulating plans. We are told that these terrible rich folks are sucking the country dry by not paying their “fair share” of taxes. What we never hear from the Democrats is that this “soak the rich” mentality was in large part what drove the country into the Great Depression. They also ignore the results of lowering taxes by both Democratic (John F. Kennedy) and Republican (Ronald Reagan) presidents - huge increases in tax revenue, greater employment, and a burgeoning economy! If nothing is changed in the next 60 days, tax rates on the top tier will rise from 35% to 39.6% and every other tier will rise as well. Another point the Democrats seem not to want to acknowledge is that two-thirds of the small businesses are included in this tax hike because of the IRS rules under which they function. Add to this a likely decrease in spending as families try to re-budget to handle the double-whammy of increased tax rates plus taxes on health care benefits, and the probability of a double-dip Recession looms large.

On top of this we have another set of tax increases looming as they year draws to a close. Capital gains taxes will rise 5% which will likely put a damper on non-banking investments in small and start-up businesses. Plus small business expensing for qualified equipment purchases will be slashed from $250,000 to a bare $25,000. Beginning in 2011 these expenses will have to be “depreciated” at a much slower rate. Finally (at least for this post) the “research and experimentation tax credit” will end and several other business tax increases will take affect.

Sometimes it is necessary for people to stand up and say “This is wrong” - this is one of those times. If we hope to bring our economy back, small businesses must be given the freedom to not just survive but grow. The outlook is not good without some real Change.

Craig G. Francis is the owner of Francis Financial and The SBA Loan Store.
He has been a top producer of SBA Loans since 1981, and has worked with
Dun & Bradstreet and Bank of Commerce. Craig Francis has the expertise to steer clients through the often confusing rules and regulations associated with SBA Loans, having helped over 2,000 businesses acquire over a billion dollars in loans. He can be contacted through CraigGFrancis.com, SBALoanStore.com, on LinkedIn, or at 888-666-9722