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Posts Tagged ‘small business loans’

What You Need to Know About SBA Loans

November 18th, 2010 :: mhaubrich

By Maria Valdez Haubrich

Is your business looking for growth capital in a tight economy? A Small Business Administration (SBA) guaranteed loan could be the answer to your problems. The SBA doesn’t directly make loans to small companies, but it guarantees a certain percentage of a loan that is made by participating lenders. This guarantee makes lenders more willing to take a chance on your business.

In fiscal year 2010, demand for SBA loans grew, and so did the number and dollar volume of loans. The SBA guaranteed more than $22 billion (54,833 loans) in loans to small businesses, compared to more than $17 billion (47,897 loans) in fiscal year 2009.

Businesses that have a track record of success, are looking to grow and have collateral to put up against a loan are good candidates for SBA loans. Here’s a closer look at the types of loans available.

7(a) Loans: The SBA’s biggest loan program, 7(a) provides financing for a variety of purposes. Under the recently passed Small Business Jobs Act, limits for 7(a) loans increased to $5 million. Within the 7(a) program are these specialized loan programs:

  • Express Programs: These streamline the financing application process and include SBA Express, Community Express (for businesses in disadvantaged communities) and Patriot Express (for businesses owned by military veterans). The Small Business Jobs Act temporarily increased the cap on SBA Express loans from $350,000 to $1 million for one year.
  • Export Loan Programs: Programs to boost small-business exporting include the Export Working Capital Program, the International Trade Loan Program and Export Express. The Small Business Jobs Act raised the limit on Export Express loans to $500,000, and raised the cap on International Trade and Export Working Capital loans to $5 million.
  • Rural Lender Advantage Program: For companies outside major urban areas, this program streamlines the application process to help small rural lenders make loans.
  • Special Purpose Loans Program: This encompasses business loans for small businesses with a wide range of specialized needs.

CDC/504 Loan Program: Offers long-term financing to buy fixed assets such as equipment and real estate. Loans are made by nonprofit organizations called Certified Development Companies (CDCs). The Small Business Jobs Act boosted the cap on 504 loans to $5 million; for manufacturers and certain energy-related projects, the cap is $5.5 million.

To find out more about SBA loan programs and learn how to prepare to seek financing, visit the SBA website.

 DISCLAIMER: The information posted in this blog is provided for informational purposes. Legal information is not the same as legal advice — the application of law to an individual’s specific circumstances. The information presented here is not to be construed as legal or tax advice. Network Solutions recommends that you consult an attorney or tax consultant if you want professional assurance that the information posted, and your interpretation of it, is appropriate to your particular business.

Banks to Increase Lending to Midsize Businesses

October 25th, 2010 :: Rieva_L

By Rieva Lesonsky

Commercial lending to midsize businesses is projected to grow this year, according to data from bond-market advisory firm CreditSights reports After two years of a credit crunch, why are banks now announcing new plans to focus on commercial lending?

The collapse of the housing market is one reason—obviously, banks have lost much of the residential mortgage business that once dominated their portfolios. Second, the passage of the CARD Act, which has restricted banks’ ability to profit from consumer credit cards, has banks looking elsewhere for a way to make money.

Commercial lending, which accounted for as much as 40 percent of banks’ portfolios in 1960, fell to just 15 percent in 2010 as banks relied on consumer credit for much of their business. Now, banks are turning back to commercial loans, which offer them higher margins and terms, says CreditSights, as well as a chance to cross-sell other services to the businesses that borrow.

The Federal Reserve’s July survey of senior loan officers showed that banks were already loosening their standards on many types of commercial loans. Many had also stopped downsizing companies’ existing lines of credit.

Currently, banks are focusing on lending to companies in industries with high growth potential, including health care, technology and energy. But some are focusing on other areas, such as manufacturing. In addition to major banks such as Wells Fargo, U.S. Bancorp and PNC Financial Services, larger regional banks are also getting into the game—so you may want to investigate what’s going on with banks in your area.

Will the change in lending standards be good or bad news for smaller companies? So far, one expert cited by says, it’s bad news—banks are becoming more aggressive in their approach to small companies that have outstanding loans or lines of credit and show signs of cash-flow problems or management weaknesses.

If that sounds like your company, you better get your ducks in a row. If it doesn’t describe your business, the change could be good news for you in the long run. With more banks looking to midsize businesses as a way to make money, it could be just a matter of time until the wealth trickles down to smaller firms.

Good News for Small Business: SBA Loan Numbers, Limits Rise

October 21st, 2010 :: Rieva_L

By Rieva Lesonsky

The Small Business Administration (SBA), whose fiscal year ended September 30, reports some surprising news: Despite a tough economy, the number of SBA loans rose by some 30 percent in 2010.

The SBA approved $16.84 billion in loans (54,826 loans) in the past 12 months—an increase from $13.03 billion in fiscal 2009. (By comparison, in 2007, before the recession hit, the SBA approved $20.61 billion in loans.)

The stimulus enacted in February 2009 is responsible for much of the growth. It eliminated fees and increased the maximum loan guarantee from 75-85 percent to 90 percent. Between February 2009 and May 2010, the average weekly dollar volume was $330 million—much larger than the $172 million weekly average for the seven weeks before the stimulus, The Wall Street Journal reported.

The increase in lending is especially impressive in light of the obstacles borrowers faced. During fiscal 2010, the stimulus provisions had to be extended four times by congressional vote. This led to lengthy delays where borrowers who hadn’t received approval had to get into a “queue” and wait until Congress approved the stimulus extension. The longest wait took place this summer; the provisions expired in May and weren’t extended until the Small Business Jobs Act was signed September 27. Within one week of that signing, the SBA reported that $970 million in loans or 1,939 loans that had been sitting in the queue had been cleared.

As part of the Small Business Jobs Act, effective October 8, the SBA also officially increased the cap on various types of loans:

  • The cap on SBA Express loans temporarily increased from $350,000 to $1 million.
  • The cap on 7(a) and 504 limits permanently increased from $2 million to $5 million; for manufacturers and certain energy-related projects seeking 504 loans, the cap is now $5.5 million.
  • The cap on International Trade and Export Working Capital loans has been permanently increased from $2 million to $5 million.
  • The cap on microloans has been permanently increased from $35,000 to $50,000.
  • The cap on Export Express loans has been permanently increased from $250,000 to $500,000.

These measures should make it easier for small businesses to get the loans they need—at least, until the stimulus provisions expire again at the end of calendar year 2010.

Image by Flickr user Kevin Dooley (Creative Commons)

Proper Use Of Collateral

March 26th, 2010 :: Gary Honig

Business owners who are operating revenue driven companies often turn to outside sources of capital when looking to grow faster. Either a company can sell shares (and shared ownership) to raise capital or they can borrow against collateral. Collateral usually means some sort of tangible asset such as equipment or receivables.

When using collateral for borrowing, it can be costly to not recognize the ramifications of pledging certain assets. This means, once collateral has been borrowed against in the form of a loan, the loan must be paid off in order for the same collateral to be used again. All lenders can quickly ascertain whether a loan exists and what collateral has been assigned. Asset based lending companies require a first security position on the collateral they are financing. Pre-existing loans or credit activities that have been issued a secured position on collateral make additional funding impossible.

Generally the problem stems from a line of credit, which was used up over an extended period of time. Ideally, a line of credit from a bank should be properly managed and treated like a revolving loan. Money should be taken from the line, but regularly paid back to pay down the line. Having the discipline to borrow and pay back on a line of credit will keep the financial condition of the company sound. This means certain expenditures must wait until profit or other investment is available.

What finally happens with the mis-management of a line of credit is – the line has reached the maximum credit limit. In today’s lending environment, the bank will be unwilling to extend further credit and probably will change the structure of the outstanding amount into a “term loan.” This means the total amount is due on a monthly installment payment plan, leaving the company with their collateral spoken for and no ability to raise additional capital through alternative sources.

So the critical lessons here are, knowing when the company assets are being used as collateral and don’t get caught in a dead end where there is no access to badly needed working capital.

Shopping for a Bank, Part II: The Regional Bank

March 12th, 2010 :: Monika Jansen

As I recounted in Shopping for a Bank, Part I, I hate math, numbers, accounting, the whole shebang.  Since the March Grow Smart Business theme is small business finance, I was not sure what I would write about, as my posts are normally about marketing.  Then a light bulb went on: Since I am currently bank-shopping, I would use my experience as blog post fodder.   I already wrote about the upside of doing business with a small community bank; specifically, Access National Bank, which is headquartered in Reston, VA and has five branches.  I now turn my sights on a regional bank; next up will be a huge national bank.  My goal is to figure out which type of bank would be most convenient, easiest, and most fun to do business with.

Without further ado: the regional bank.

BB&T LogoI met Mike Moore, Assistant Vice President at BB&T, through networking.  He is a really nice guy, and if you read enough of my blog posts, you know that the simple act of being nice earns huge points in my book.  We sat down together recently, and he gave me some background on the bank.  It was founded in 1872 in Wilson, NC and is now headquartered in Winston-Salem, NC.  Their territory stretches from Maryland down to Florida and over to Texas (after first leap-frogging over Mississippi and Louisiana).  They have 1800 branches, and their bank is in the top ten in the US in terms of size.  They also own the sixth largest insurance brokerage firm in the US, and they have a merchant services company under their umbrella as well.

Just as I asked Access National to run down a list of what makes them unique, I asked Mike to do the same.  Here’s what he said: 

  1. Over the past 18 months, BB&T’s focus has shifted to servicing small to mid-sized businesses rather than just personal accounts.  As a result, Mike and his colleagues are not strictly lenders anymore but rather small business advisors who build a collaborative relationship with their clients.
  2.  Not only does Mike put together banking and financing plans for his clients, but he also meets with and speaks to his clients on a regular basis to find out if their needs have changed.  He is also easily reachable via email or his direct office line.
  3.  “We’re as big as you want us to be, and we’re as small as you want us to be.”  BB&T offers all of the products and services the huge banks do, but only if you need them.  In other words, credit cards, mortgage refinancing, special car loan rates, etc. are not pushed on BB&T clients.
  4. Though BB&T is fairly large, decision-making is done locally, allowing Mike and his colleagues to make quick decisions on behalf of the bank for their clients.  The fact that the employees are empowered to make decisions that put the bank at risk (lending is a risky endeavor, after all) speaks volumes about the leadership at the bank.  It is extremely important for me to work with people and institutions who view trust as a two-way street.
  5. Because BB&T has its own insurance brokerage firm and merchant services company, they can offer lower rates on certain services.
  6. BB&T is still lending money to small businesses, even start-ups.  Mike said the fact that the media constantly talks about restricted access to capital is wrong, and he gave me examples of loans he has recently made to clients.  I wonder if it’s only the huge, TARP-dependent banks that are not lending money?

When compared to Access National, BB&T offers the same highly personalized service.  I would not be a number with them, something I really appreciate.  Naturally, they offer more products and services, but one product in particular is a big deal for me: BB&T offers a credit card, while Access only offers a debit card.  However, Access is across the street from me, while I’d have to drive to BB&T.  Again, not a huge difference, but an important one.

Next up: the huge national bank (and yes, they received TARP money!).

What Is Invoice Factoring and Why Is It Important In Today’s Economy?

December 14th, 2009 :: Gary Honig

In today’s credit restricted economy it is critical for business owners to be aware of all the various forms of financing that are available. Too often these days, banks are self absorbed in protecting their internal balance sheet, rather than taking on risk in the form of loans to small businesses. Even in the best of times emerging growth companies need to rely on alternative forms of financing to insure their success.

Factoring companies have been around for ages, and still in everyday life most people have no idea what they do. Simply put, “factoring” is a form of commercial financing or debt financing which has collateral as the basis for borrowing money. In this case, an invoice or obligation to pay by an account debtor is the collateral for borrowing.

Whenever a company provides a service or sells a product to a customer and offers terms of payment, the company is in essence “loaning” money to the customer until it gets paid. This act of making a loan to the customer is commonly known as the invoice. The factoring company makes arrangements to buy this invoice, pay the company immediately and waits for the customer to pay their invoice – back to the factor.

There are some principal benefits to this type of financing;

  1. Speed: Unlike most capital resources, the factoring relationship can be set up in days, and once set up, the funding of an invoice happens within 24-48 hrs.
  2. Financial: The funding decision is based on the financial quality of the customer, while the factoring client can be financially challenged or just getting started.
  3. Credit Limit: Generally as long as the client is invoicing a good creditworthy customer the factoring relationship can grow with the client, so there may not be any limits of access to capital.
  4. Discipline: One of the ways a company can get into trouble with a bank line of credit is lack of discipline – meaning not regularly paying down the line. With factoring each time the customer pays the invoice it retires the mini-loan.
  5. Equity: Factoring is considered an “off-balance sheet” form of financing which keeps any net term liability off the corporate balance sheet preserving the equity position in a positive manner.
  6. Set Up: The process of getting started requires minimal paperwork and no lengthy negotiations compared to banks and equity venture funding.
  7. Cost: The cost of factoring invoices is relative to the short term nature of the transaction – not lasting more than 90 days. So more than a bank but less than a V.C. Companies that have very thin profit margins are not best suited for this type of financing to grow their business.
  8. Growth: Having access to capital improves the financial condition of a growing company and ultimately leads them to conventional bank financing.

Here is a typical example of how factoring works and why it can be so important to a company that is on the verge of doubling in size. A company has been struggling to get a large contract for a long time. This has created stress on their finances, getting by until the big contract finally hits – and then it does, congratulations. Now a dozen new hires need to be quickly put in place. Two weeks later comes the first payroll, two more weeks and another payroll, but the invoice is submitted to the customer. With factoring, the next day, access to the capital tied up in the invoice is available to the company allowing them relief from the working capital crisis.

Typically there are three parts to a factoring transaction:

  1. Advance: The percentage of the total amount of the invoice that the company has access to when they are funded, which is around 80%.
  2. Reserve: The remaining percentage held back and released when the customer pays the invoice.
  3. Discount Fee: The fee associated with doing the transaction which gets deducted from the reserve. Based on how long it takes to receive payment of the invoice the fee can be 2 – 5% of the full value of the invoice.

Bear in mind that factoring companies tend to work operate differently, and specialize in particular industries, so it is important to see that you get a good match when seeking an optimum funding relationship.

7 Ways To Be More Attractive To Lenders

October 12th, 2009 :: Gary Honig

It’s always said that access to funds is the life blood of any company. Going out and securing outside financing to help grow a business is an important step in the life of an emerging organization. Keep in mind, the process of commercial borrowing is best done in preparation for needing the capital, rather than when the request is made in a dire situation. Here are some necessary tips to keep in mind when preparing to seek a loan.

    1. Bookkeeping – install accounting software so you can produce up to the moment financial reports including Balance Statement and Profit Loss Statement. These reports will give the Lender a snapshot of the current financial condition of the company. It also assures that you know enough about accounting to understand the internal cash flows.
    2. Customer Credit – show you have a process in place to check the credit of all your customers. Learn how to avoid issuing credit for more than they are qualified. Sales to customers are what business is all about. Knowing the difference between a solid customer and a bad credit is crucial to long term stability.
    3. Borrowing Amount – know how much capital the business requires to operate. Whatever the business does, whether provide a service or sell a product, you must be aware of the profit margin on these activities. You should have a solid business plan in place with budgets where you can determine the potential short fall and take precautions through financing.
    4. Purpose – your business plan needs to be able to show a purpose for using the capital. This must be very specific. The more details you can provide on where the loaned money will be employed, the better the Lender can determine the viability of your plan. By admitting potential problems and offering contingency suggestions, your business plan will have added dimension.
    5. Repayment – in the business plan, give a reasonable timeline for the repayment of the loan. Preparing cash flow performance will show the road map to ultimate success and profitability. Again, incorporating contingency budgets will help to mitigate potential risk.
    6. Team – make sure the owners, managers have strong bio’s and thorough knowledge of the industry. The Lender must have confidence that the operators of the business plan can perform based on their experience.
    7. Loan package – do your homework, and put all this together with your business plan into a binder so a lender can easily see who, what, where, how this company will deal with a loan. By being pro-active through the entire process you will become a more attractive prospective client to a Lender, and therefore will have some bargaining leverage with regards to the terms of the loan. It’s always a good idea to get involved with a professional to help you through the process.

SBA Urged to Jump Start Lending

April 13th, 2009 :: Steven Fisher

I was reading the Washington Post this morning and a great article on the SBA caught my eye – “Small-Business Agency Prodded to Spur Lending”.

The article begins with “The chairman of the House Committee on Small Business yesterday urged the new head of the Small Business Administration to try to jump-start lending by using provisions in the economic stimulus bill that so far have sat idle.”

The stimulus bill passed a few months ago included the “Business Stabilization Loan Program and it’s goal is to “provide loans of up to $35,000 to small businesses so they can make payments on their outstanding debt. The loans would be 100 percent guaranteed by SBA”.

The loans can be used to make payments for up to six months, and no repayment on them will be due for a year. Businesses must fully repay their stabilization loan within five years.

The Obama administration also committed up to $15 billion to help small businesses get the loans they need and would tap the TARP money (about $700 billion) to pay for this program.

According to, “Only banks already certified to participate in the SBA’s loan guarantee programs will be eligible to make stabilization loans. But the agency expects the loans themselves to be available to any small business customer at participating banks, regardless of whether or not the customer’s existing loan was actually made through the SBA’s guarantee program. (To find out whether your bank is an SBA lender, click here and go to the SBA’s resource page for your geographic area.)”

This is great news because from the Small Business Success Index findings, access to capital is the biggest challenge for small businesses today. While this might not be all the steps required to get the small business engine back up to full steam again, it is a great start.