Craig G. Francis

Banks Pledge to Loan More to Small Businesses

In a recent interview on Fox Business News’ Willis Report, Citigroup Head of Small Business Banking Raj Seshadri spoke with Gerri Willis on the company’s pledge to lend $24 billion to small businesses through 2013. It was an interesting conversation, with Ms. Seshadri explaining Citi’s commitment to helping small businesses grow in order to stimulate the economy. Unfortunately, the interview was long on generics and short on specifics, especially when Ms. Willis attempted to pin Ms. Seshadri down on exactly what Citibank was going to do to help small businesses.

As we have seen from other large banks, the definition of “small” is about as exact as was Bill Clinton’s definition of “is.”

The interview began with Ms. Willis, whose program focuses on consumer and personal finance issues, explaining that Citigroup had pledged to lend $7 billion in 2011, $8 billion in 2012 and $9 billion in 2013 to small businesses. What was never discussed was Citigroup’s definition of a “small business.” As we have seen from other large banks, the definition of “small” is about as exact as was Bill Clinton’s definition of “is.” The importance here is that businesses at the high end of “small” are often much closer to Mid-size than to what most people consider as a true “small” business. With a larger business comes more relative financial stability, which is much more attractive to large banks who are under strong scrutiny over “risky” loans. However, this does not help the real small businesses that have traditionally been the engine of economic recovery.

One thing that concerned me about the interview was Ms. Seshadri’s seeming reluctance to give any exact details and to instead speak in platitudes. When asked why Citigroup has pledged the $24 billion, she replied, “We are very committed to small businesses. They are the core of the U.S. economy.” Ms Seshadri then went on to talk about serving business owners “holistically” - whatever that might mean. Ms. Willis may have been on the money later when, in response to Ms. Seshadri’s use again of “holistically,” stated, “You probably want every piece of their business, right?”

At another point in the interview, Ms. Willis shared some statistics from a recent National Federation of Independent Businesses survey that indicated that 11% of business owners feel loans are more difficult to get and that 89.3% felt credit standards had become too stringent. When asked for her response to the criticism, Ms. Seshadri said that “might have been true a couple years ago,” and then stated that Citibank was “very actively lending today.” However, once again specifics were lacking. Saying that they “leverage all the programs out there” in order to “get to ‘yes’ to as many business owners as we can,” there was little to her reply. She also seemed to have conveniently ignored the fact that this was from a recent poll.

Near the end of the interview, Ms. Willis asks Ms. Seshadri about the business owners who are coming to Citibank and whether they seem to be in better shape. The response is surprising to me as someone who works with small business owners on a regular basis. Ms. Seshadri says that “eight out of ten business owners say that they are healthy.” I’m not certain where she is getting her numbers, but I can assure you that it is nowhere near that positive. Yes, the business owners who have survived the Recession are in better shape than those who did not, but are they “healthy”? Or are they just telling the banker they are healthy in order to improve the chance of being approved for a loan?

There was one point that Ms. Willis seemed to have hit a sensitive topic, when she asked her guest if Citibank had “relaxed” the terms of loans compared to the height of the Recession. Ms. Seshadri responded that “as a lender the term ‘relaxed’ always makes me nervous.” She then repeats her platitude about trying to get to “yes” with more businesses. I, personally, would like to have seen Ms. Willis follow this up more aggressively, but instead she soft-balled the next question, asking how business owners get to the “yes” and allowing Ms. Seshadri to turn her answer into a pitch to visit a local Citibank branch.

Overall, this interview did not break any new ground or provide business owners with any reassurances about their chance of being approved for a loan. Ms. Seshadri’s comments about trying to get to “yes” for more businesses does not ensure that it will happen. When she says that Citibank has “made if much easier and much simpler for the customer to apply,” that does not necessarily mean that approval will be easier or simpler, just the paperwork. And, as I explained in a previous post, there are requirements banks have to go through on any loan, particularly SBA backed loans. Personally, I have not seen one single Citibank loan approved to any of my clients in the last three years. Not scientific, I know, but not a rousing endorsement, either.

The fact remains that businesses need to be able to put together loan applications that thoroughly detail their strengths and minimize any weaknesses they may have. Banks have not “relaxed” their standards appreciably, and that continues to impact small businesses and their ability to expand and create jobs - the jobs the economy needs to get back on track. We do not need to return to the days of lending to anyone with a pulse, but businesses that have survived the economic meltdown need to be rewarded for that, not punished because their numbers are not good enough.

If you are looking to start 2012 off by expanding your business and would like an evaluation of your loan opportunities, please contact me. I have over 30 years of experience in the industry and have helped over 2000 businesses with more than $1 billion in funding. I can provide an honest evaluation of your situation and help you to move forward in the most efficient manner. If you are a restaurant owner looking to expand, or if you are considering purchasing an existing restaurant, please view the special video report on this site.

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.

Due Diligence of the SBA

For years, the SBA loan guarantee program has been one of the most effective methods for successful businesses to get a start or to expand. Nearly one-third of all long-term small business loans are backed by SBA guarantees, in part because the terms make the loans more acceptable to borrowers. Long-term amortization periods and lower rates, often fixed for many years, are attractive to budget-minded business borrowers. In turn, this affordability helps ensure the likelihood of repayment, which makes lenders more comfortable.

There is another element of the process that helps to further ensure the viability of businesses that apply for SBA loans - the element of due diligence

Because the SBA does guarantee a portion of the loans, as much as 90 percent during the recent enhancement periods, banks are more amenable to providing funds. The banks enjoy solid protection, lower risk and higher profits - all factors that provide compelling reasons for banks to loan to small businesses.

But there is another element of the process that helps to further ensure the viability of businesses that apply for SBA loans - the element of due diligence.

When a business owner applies for funding through the SBA loan program, he or she is faced with a variety of requirement that must be satisfied. These will include loan applications by both the businessperson and the lender, personal background and financial statements, three years (if existing) of business financial statements and a financial projection. These are only the beginning of the process, which can seem daunting to many new business owners, however the committed individual will move ahead.

Many business owners feel that the paperwork involved makes the process nearly impossible. This is completely false. If anything, the paperwork is the same or even lower than conventional loan since the loan risks are lower. If you have applied for a residential loan and seen its extraordinary amount of paperwork, the SBA is the proverbial piece of cake.  Besides which, if your loan has a 10 year period, this is a small investment of time. In other words, it is WORTH it  to do the process. And who knows, you may get approved.

Remember, that it is in the best interest of all parties - business owner, lender and SBA - that every possible issue be identified and explained. To further protect both the SBA and the lender, and therefore the most viable business borrowers, recently a new requirement has been added to the application and verification process. By January 1, 2012, all SBA approved 7(a) lenders and Certified Development Companies must sign up for and begin checking the Credit Alert Verification Reporting System (CAIVRS).

Just what is CAIVRS and why does my lender need to check it, you may ask. In short, it is a federal verification website that will allow a lender to verify that a borrower does not have any defaulted or foreclosed federal loans, such as student loans. The requirement, known as SOP 50 10 5, became effective on October 1, 2011, but lenders have been given until December 31, 2011, to sign up and be fully compliant.

The new regulation states: “Delegated lenders are responsible for checking the Credit Alert Verification Reporting System (CAIVRS) to determine if any of the individuals or businesses identified in paragraph (4) immediately above has either a Delinquent Federal Debt or a Prior Loss which would result in the Small Business Applicant being ineligible for SBA financial assistance.”

While this may seem another unnecessary step in the process, it is actually one of the few ways the government works to limit its liability. In the 24 years the program has been in effect, it has helped federal agencies avoid billions of dollars in potential losses from loans to individuals who have already defaulted on a government loan. HUD alone estimates it has avoided over $4 billion in losses and another $12 billion in potential claims.

So what does this mean for the borrower? First, if you are in good standing with the federal government - as to loans, at least - you have nothing to be concerned about. The duty of checking falls to the lender alone. Second, if you are a responsible business owner looking for an SBA-guaranteed loan, you can feel satisfied that something is actually being done to prevent irresponsible individuals from tainting the application process. Finally, if you are an SBA-approved lender, this gives you one more step in your due diligence process to ensure that any loans you make have the best probability of repayment.

If you are a business owner and are looking to apply for an SBA-backed loan, your first step should be to contact someone who can answer any questions you have and help you verify that you are, indeed, on the right track. Not every business owner will be approved for an SBA loan, and not every business owner should even apply. Get your questions answered and your situation evaluated before going through the entire process.

If you would like to get an honest evaluation of your position and chances of success on an SBA loan, you can contact me at the sites and/or numbers below. If you are looking to open a restaurant, I encourage you to watch the information video on this site. I wish you a good year end and a successful 2012.

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.