February 11th 2009
Let’s face it, times are tight for businesses, especially if you are a small business that has not established good credit. If the lenders are tightening up their lending practices, what options does this leave the small business owner that needs working capital to grow their business?
Here is a list of options that you may not have considered:
August 25th 2008
I’ve been in the financial arena for over 25 years, and I would tell you that the SBA finances small business. But do you know how they do it? Do you know about all the other programs that they administer? Well, today we will start with just one part of the SBA – their 7(a) program.
To quote their website,7(a) loans are the most basic and most used type loan of SBA’s business loan programs. All 7(a) loans are provided by lenders who are called participants because they participate with SBA in the 7(a) program. 7(a) loans are only available on a guaranty basis. This means they are provided by lenders who choose to structure their own loans by SBA’s requirements and who apply and receive a guaranty from SBA on a portion of this loan. The SBA does not fully guaranty 7(a) loans.
Actually the SBA does not fully guaranty any loans; the maximum is 90% in certain programs.
A key concept of the 7(a) guaranty loan program is that the loan actually comes from a commercial lender, not the Government. If the lender is not willing to provide the loan, even if they may be able to get an SBA guaranty, the Agency cannot force the lender to change their mind. Neither can SBA make the loan by itself because the Agency does not have any money to lend. Therefore it is paramount that all applicants positively approach the lender for a loan, and that they know the lenders criteria and requirements as well as those of the SBA. In order to obtain positive consideration for an SBA supported loan, the applicant must be both eligible and creditworthy.
And to repeat, this is a key concept. Small businesses would like the SBA to be able to provide more money when banks are not able to provide credit, as in the current environment. But the SBA does not actually have any money to lend. And even though they provide a guaranty for half or most of the loan, depending on the program, they can’t force the bank to loan any money. The SBA will guaranty the loan that the commercial bank makes, assuming that it is meeting the criteria. But now the banks’ lending criteria are more strict than what the SBA requires. So the SBA has been guaranteeing fewer loans.
I asked Jim Pipper, Marketing & Outreach Specialist here in the Phoenix office of the SBA, to comment on the information in the press about the SBA’s lower loan volume in 2007. He confirmed that lenders are not willing to take on as much small business lending as the SBA is willing to guaranty. In fact the SBA is projecting lower loan guaranty volume for their next year as well.
If you are looking for an SBA lender, going to your bank is probably the first step. But this link will take you to the Arizona SBA’s list of banks that are currently doing SBA loans.
Please read the caveats at the top. Some of those banks in the yellow/beige group may be new lenders, or just haven’t replied to the survey. So they might be worth a call.
Next post, I’ll share with you some of the other services that the SBA provides. The SBA is not just about money.
July 26th 2008
Cash flow is the life blood of every business. Cash flow is about timing — the timing of money coming in vs money going out. If you can’t control that timing, it will affect almost every aspect of your business. Proper management of cash flow means that businesses will have the working capital they need to grow and to take advantage of the opportunities that may arise.
Not keeping a close eye on cash flow can cause ripple effects that could lead to business failure. Very real problems can arise when cash going out overwhelms cash that is coming in (you may have presented invoices to your customers, but that doesn’t pay the bills).
Here are some of the things that can happen:
Your expenses go up when you can’t pay bills on time, because you are assessed late fees.
Planning is hindered — Plans you may have for a product launch, the addition of business equipment, advertising and promotion or for anything else that may promote growth can be derailed.
Problems in your workforce — Cash flow issues can cause panic among employees. You don’t want them to worry about getting paid.
Customer turnover — What if you have trouble paying suppliers and they begin to slow the pace of delivery of goods and services to you, which, in turn, causes difficulty in getting goods and services to customers? If lead times on product delivery get longer on a sustained basis, loyal customers won’t stay loyal that long.
So what can you do to streamline cash flow, both before problems occur and once they do? There are a number of tactics you can use.
paying within 10 days, be sure to compute the cost of not taking the discount.
If you do run into cash flow problems, the one thing you must do is communicate. Talk with your suppliers. Don’t avoid them.
Most important, knowledge is power. Work with your bookkeeper or accountant to develop a cash flow forcast if you don’t have one. If you are a rapidly growing business, you will have a cash shortfall. If you have predicted a cash shortfall, you can make funding arrangements. Line up funding before it becomes a crisis so that you will be able to take advantage of the business opportunity. If your bank cannot fund you, be aware that there are alternate business funding sources.
July 16th 2008
When small business financing problems arise, we sometimes forget about what has worked for years and years…factoring. There was a great article in the Phoenix business Journal by Chris Cassacchia that showcased a success story for getting working capital when the bank says NO.
Yes factoring is not a new concept but it is arguably the fastest way to get working capital for your business, sometimes as quickly as 5 days. Yes there are some requirements to is but is is quite simple because it is based on your invoice receivables. If you have contracts to back up the outstanding invoices, you can get cash for your business.
If you are looking for a small business loan based on sound business principles, the bank has turned you down and you need the money fast, get in touch with the business funding expert.
July 3rd 2008
By JANE J. KIM, Wall Street Journal
When Jeff Walsh wanted to refinance the small-business loan on his coin laundry, he didn’t want to take a chance that his bank would reject his application. “I just bought a house in 2007 and was a little nervous about what the bank would say about my debt-to-income ratio.”
Instead, the 31-year-old from Schaumburg, Ill., recently borrowed $22,500 on Prosper.com, an online lending network that matches individual borrowers and lenders. The interest rate on Mr. Walsh’s loan: 10.25% — several percentage points below what he says he would have had to pay at a bank.
As the credit crisis spurs traditional lenders to tighten credit standards and raise fees, more small-business owners and entrepreneurs are turning to so-called person-to-person lending networks — with names like Prosper, LendingClub.com and Zopa.com — to help keep their businesses going. The unsecured loans are tiny, usually no more than $25,000. But borrowers say they are able to get loans more quickly and with less paperwork than at a bank. And people with good credit are able to lock in lower rates — often 8% to 12% — than they would otherwise have to pay on credit cards or unsecured bank loans.
Person-to-person lending is a small but fast-growing corner of the Web economy. New sites are jumping in, including Virgin Money USA, majority-owned by Sir Richard Branson’s Virgin Group PLC. Roughly $100 million in new P-to-P loans was issued in the U.S. last year, a number that is expected to jump tenfold by 2010, according to Online Banking Report. Recently, some larger financial institutions have begun to take notice of P-to-P lending, saying that offering loans through the sites is a way to bring in more deposits and reach more consumers.
And, I would be remiss if I didn’t remind you that Arizona Business Funding is an alternative source of funds, if your bank can’t make the loan.
Here’s how it works:
Customer comes back to your bank for traditional lending when he has “outgrown” IFG because he has never left your bank.
