Business Loans

This is a very complicated issue with many contributing factors:

Some of the issues are net worth, income, spousal income, protected retirement investments, family, basic overhead, secured debt, other assets, other business interests, medical issues, education, age, where you love, what the assets in your business are worth, structure of the offer, and previous income history to name a few. There are just as many more not listed as each case is unique and each case requires a unique evaluation and presentation. Each case requires its own special evaluation.

However, if done appropriately and within SBA guidelines and as dictated by much experience seeing what works and what does not work, if done correctly and presented effectively and if a trust relationship has been established between the bank and us as third party representatives of a defaulted borrower, we have typically experienced forgiveness debt between 90% and 95%! That works.

We have seen attempts to execute an effective Offer in Compromise with the SBA on a defaulted loan directly by the borrower, refused with a significant 50% cash offer. Why? Not presented or evaluated correctly and the borrower is the last person to effectively create a trust relationship with the bank as he already broke his word and defaulted on the contract, the borrower is the least credible and the least likely to get the best possible result.

Of course there is the issue of what to offer and how to offer it, that only experience will reveal and if doing it for the first time, as a borrower would be doing, it is impossible to know what to do. Even your lawyer, unless he specializes in Bank workouts and SBA workouts with massive debt forgiveness, he too will be clueless as to how it really works.

Most Offers in Compromise are rejected. Some do eventually get worked out but at much higher amounts than if handled by experts who know the path.

When properly done, our clients pay between 3 – 10 cents on the dollar, with some paying in a lump sum while others we arrange term payoffs over time, a few years up to 5 if necessary.

This is affordable. This truly allows the borrower the opportunity to get on with his life again and move into a new income producing venture be it employment or entrepreneurship. He has his life back and has not lost his home.

While most homes are upside down and, thus, offer no value from foreclosure liquidation, some are not upside down and have equity and these must be handled in a few specific ways to prevent the loss of one’s home. We know how to do this and most borrowers do not. So we can easily say not one of our clients has ever lost their home to a bank or SBA liquidation process if they were represented by us prior to the foreclosure and liquidation.

Debt forgiveness and no loss of one’s home are possible, if you know what you are doing.

Author: Don Todrin
Article Source: EzineArticles.com
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Many business owner and other professionals in the commercial mortgage industry are surprised to learn that the SBA does allow refinances through the 7a program and their rate does not have to float.

In terms of what situations qualify for the refinance, it boils down to taking borrowers out of a difficult situation. For example, if the borrower is in a hard money loan they’ll qualify. Or a borrower facing a ballooning or having a rate at or 2% of market will fit as well. The general rule of thumb is that if the borrower saves 20%on their monthly payment by the refinance, they qualify, but still have to meet the rest of the underwriting guidelines. Which, because the SBA guarantees 75% of the loan for the lender, the underwriting rules are reduced relative to other commercial mortgages.

One of the biggest benefits of refinancing through the 7a is that you can go up to 90% loan to value – 90%… Most of the industry is currently at 70-75% on general purpose/ 60% on special purpose and in a declining property value environment, where many deals are getting canceled due to lower than expected value, this is a huge benefit.

Another major benefit is that there are a handful of SBA lenders that will go down to mid 500 credit score and a few that will go to 500, assuming that the rest of the borrowers situation is ok.

The floating rate and guarantee fee have historically been the biggest negative of the program. The rate that most borrowers see is PRIME + 1-2.75% and floats, adjusting once per quarter. The guarantee fee is 2.75% of the guaranteed portion of the loan (75% of the actually loan balance), which is received at close, taken out of the proceeds.

HOWEVER, it pays not to assume that all SBA 7a loan programs/lenders are the same. We represent 2 banks that are currently offering 5 year fixed 7a loans AND they absorb the guarantee fee themselves. So the borrower gets the benefit of the 90% financing and “loosened” underwriting guidelines plus has a 5 year fixed rate mortgage, at prime plus 1-2%. Again, fixed for 5 years, and amortized over 25 years.

Cash out refinances are doable under the 7a program but come with more loan scrutiny. The most important concept here for the borrower to understand is that all cash out proceeds must go towards business expenses. No personal debt consolidation allowed, for example. Further all cash out proceeds will be controlled by the bank and they will directly pay off any debt that is being rolled into the loan.

Despite all the issues currently going on in the capital markets, the SBA 7a program is still viable and offers business owners a solid option to refinance their current debt into lower rates and thus lower monthly payments.

Author: Jeff S Rauth
Article Source: EzineArticles.com
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The word is out that the new stimulus bill (American Recovery and Reinvestment Act of 2009) has a special provision creating a Federal government secondary market for SBA guaranteed loans. If you are a small business owner, will this loosen up my lender purse strings and allow some money to trickle down from the big cats on Wall Street and into your pockets? Yes, it is a good start, but hold your contagion because it is not as wildly exciting as you might think. In fact, some have openly criticized the new bill. This is a continuing article (20 in all) on the subject: Help. Is anyone out there loaning to small businesses anymore?

Let us first begin by looking at a program that is already in existence and is being sold on the secondary market. There is a loan program out there and SBA lenders are actually making loans currently: the Community Express Loan Program. This gives unsecured small business loans between $5,000 and $50,000 with very little paperwork, answers typically in two days, interest rates presently at 7.75%, funding and two weeks, and monies wired directly to your business account. There are still lenders participating in this program, although Congress has failed to make the program permanent and still has a 10% cap on the number of loans. Enter the Obama stimulus bill. Let us look how it affects this program and small business lending as a whole.

Some undiscerning headlines claim $3 billion in the stimulus bill is being pumped into the secondary market and viola, the banks will be making more loans. Not so fast. As this article explains, that money is being pumped into an elite SBA program that will not affect the average small business owner.

Before I give a clear answer, let’s define what we’re talking about. Most of us have heard about SBA loans. With the exception of disaster loans and the Microloan Program (for underserved communities), the Federal government through the U.S. Small Business Administration (SBA) does not actually loan the money. Instead, it licenses private lenders, like the community bank on your block, to make loans and if there is a default, Federal government guarantees come to the rescue and reimburse for a certain percentage. So, if you got a $100,000 loan (in this economy? OK, hypothetically) that has a 75% guarantee and there is a default, after going through certain steps, the lender could receive reimbursement for up to $75,000. And remember there are literally thousands of lenders out there that do SBA loans for the simple reason they feel warm and fuzzy with the guarantee.

Now here is how the secondary market works. In the good old days absent toxic reverse mortgages, banks held onto their loans and simply kept the in-house interest. But those days are long gone and banks now pool their loans and sell to investors on the secondary market which pays them a premium because of the expected enjoyment of future loan interest. They were packaged almost like mutual funds. Unfortunately, the secondary market is now a dry creek bed. I’m not handing out excuses for our banks, but this is one of the reasons they are not loaning.

But ask the average person on the street and a grimace creeps upon their face when they hear the name SBA loan: “Yeah, in whose lifetime? I would much prefer getting a loan while I’m still young.” Visions pop into their heads of pounds of paperwork, endless regulations, untold delays, and layers of government red tape. But not so fast. The SBA also has excellent smaller loans which are truly “lean and mean”.

So what does the new stimulus bill do? It got on an “A” for the idea but hardly passing with the follow through-it did not go nearly far enough. Under Section 503 of the new bill it has set up a secondary market for 504 loans only (to eliminate any confusion, the term “504″ refers to a section under the old Small Business Investment Act, and not the current stimulus bill) which applies primarily to larger ventures seeking commercial loans for buying land and buildings. A private lender works in conjunction with a government Certified Development Company. Typically, the private lender makes a loan for 50% of the cost under a first mortgage (not guaranteed by the SBA) with 40% loaned by the CDC in a second position (100% SBA guarantee). The other 10% would be cash by the borrower.

So, if you are a trucking company that has worked hard and increased your number of trucks from 5, to 10, to 15, and years later to 100, you need to buy a new yard and warehouse (for less than truckload jobs). Cost–$4 million. You get a bank to loan under the 504 Program as a first position commercial mortgage. The SBA now has the authority to set up a SBA Secondary Market Guarantee Authority and give guarantees for pools of 504 loans to be sold to third party investors on the secondary market. The lender has to retain at least a 5% interest at risk. The SBA loan guarantees not more than $3 billion of such pooled mortgages.

If you like to read fine print, here is the exact wording:

SEC. 503. ESTABLISHMENT OF SBA SECONDARY MARKET GUARANTEE AUTHORITY. (a) PURPOSE- The purpose of this section is to provide the Administrator with the authority to establish the SBA Secondary Market Guarantee Authority within the SBA to provide a Federal guarantee for pools of first lien 504 loans that are to be sold to third-party investors.
(b) DEFINITIONS- For purposes of this section:
(1) The term `Administrator’ means the Administrator of the Small Business Administration.
(2) The term `first lien position 504 loan’ means the first mortgage position, non-federally guaranteed loans made by private sector lenders made under title V of the Small Business Investment Act.

And further:

(2) GUARANTEE PROCESS-
(A) The Administrator shall establish, by rule, a process in which private sector entities may apply to the Administration for a Federal guarantee on pools of first lien position 504 loans that are to be sold to third-party investors.

But there is a catch. In another article I stated the SBA is doing away with the borrower paying a loan guarantee fee, which can be thousands of dollars for larger loans. Unfortunately, for the secondary market on 504 loans, the SBA will charge a fee. Currently, these loans did not have an SBA guarantee:

(3) RESPONSIBILITIES-
(A) The Administrator shall establish, by rule, a process in which private sector entities may apply to the SBA for a Federal guarantee on pools of first lien position 504 loans that are to be sold to third-party investors.
(B) The rule under this section shall provide for a process for the Administrator to consider and make decisions regarding whether to extend a Federal guarantee referred to in clause (i). Such rule shall also provide that:
(ii) The Administrator shall charge fees, upfront or annual, at a specified percentage of the loan amount that is at such a rate that the cost of the program under the Federal Credit Reform Act of 1990 (title V of the Congressional Budget and Impoundment Control Act of 1974; 2 U.S.C. 661) shall be equal to zero.

This secondary market program set up by the SBA will only last for two years under section 503 (f). Because this is emergency legislation, the SBA is to issue regulations within 15 days of the signing of the bill (503 (i)); amazingly quick for government purposes.

What about the secondary market on other loans? The typical everyday medium to large SBA loan is under the workhorse 7(a) program. For example, using the same trucking company, if they needed money to purchase more trucks, hire employees, or for general cash flow, they would seek a 7 (a) loan. The stimulus bill does not set up a new secondary market for 7(a) loans. But it does allow direct government loans (not made by private banks) to broker-dealers in the secondary market purchasing 7(a) loans. So if you are in the business of buying pooled 7 (a) loans and need a loan to do so, taxpayers monies will be used for this purpose. The idea is to stimulate this secondary market again so banks will make further loans.

But what about the small guy? here the news is very disappointing. Studies show the average small businesses loan is $10,000. None of the stimulus programs helps the secondary market on the smaller loans and so few lenders are loaning.

But do not give up hope. There are still lenders out there, including those lending their own money, that are still making loans in the range of $5,000 to $50,000 unsecured at good rates, in the neighborhood of 7.75%. You just have to know where to look.

Author: Sue B. Malone
Article Source: EzineArticles.com
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In order to give a boost to the spirit of entrepreneurship of its citizens, the federal government provides business loans to individuals to help them start a small business. The governments Small Business Administration (SBA) handles these loans usually by acting as a guarantor for loans provided by other institutions. In rare cases, the loan is provided directly by the SBA.

Besides the SBA, there are other government agencies that have programs of their own that provide loans and grants to small businesses. In order to get these loans, a small business owner or entrepreneur has to submit a proposal showcasing the blueprint of the business plan and the specific capabilities that he or she possesses to run the business effectively.

The small business owner applying for the loan needs a positive credit score in order for the loan to be approved. These credit factors are reviewed and analyzed by the authorities before a decision is made to extend the loan.

There are several categories of loans programs provided by the SBA. One of these is the Basic Loan Guaranty program, which aims to help small businesses who may not be normally eligible to receive loans from lending institutions. These loans are provided by commercial lending institutions with the SBA acting as guarantor.

The Certified Development Company (CDC) Loan Program aims to assist those seeking to own real estate or machinery for expansion or modernization. This program provides a long term loan at a fixed-rate of interest. Usually, ten percent of the loan amount needs to be contributed by the small business owner in the form of equity.

The micro loan program aims to provide short-term loans with a maximum limit of $35,000 primarily for working capital and inventory requirements. These funds cannot be used to pay off existing debt. This loan is also available for non-profit childcare centers. The loan prequalification program permits those seeking loans of amounts less than $250,000 to have their application analyzed and potentially sanctioned by the SBA before lenders are approached for consideration.

Government small business loans play a vital role in fostering the spirit of entrepreneurship and should be looked on as an important means of funding for those looking to start their own business.

Author: Peter Emerson
Article Source: EzineArticles.com
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SBA 7a loans have been all over the TV, papers and internet lately.Though this is the most popular program for the SBA it general resides under the radar and very few people know what it really is and what the real benefits of the program are.The current hype is largely due to the Stimulus Package, but what is the program really all about?

The primary benefits of the program include high levels of leverage, ability to roll working capital, and equipment costs into the loan.In addition, underwriting standards are more flexible than typical commercial bank loans.For example, the SBA allows for the use of business income projections and lower debt coverage ratios.

Most people assume that projections are only used on start up businesses.That is not the case; you can use them for example on turnaround situations or on expansion projects. Say you needed to add an additional 30,000 sf of space onto your existing building to accommodate a new machine/type of production.

However your current level of net income does not meet the standards of your bank.They are only considering your current net income (historical) not what it will be based on the expansion.The SBA 7a loan can allow for this and accommodate your expansion.

Lower debt coverage ratio are very important especially now, as the economy continues to sputter.The typical bank now wants a 1.3 ratio, while the SBA 7a loan can go down to a 1.1 or even lower.There are a few banks that will go to a .8, which means you are losing money every month (However you do have to have other compensating factors, like a relative high level cash, equity or a solid turnaround plan).

But what the ratio really reflects is your real cash flow.For example, for every $1 of annual mortgage payments, your business needs to nets $1.20 of net income to hit a 1.2 debt cover ratio.So after you pay the proposed loan you would still have $.20 left over.By bringing the ratio down to a 1.1 you don’t have to prove as much net income ($1.10 in this example) as you do on typical commercial bank deal.

For these reasons and others, the SBA 7a loan remains a solid loan program for America’s small business.

Author: Jeff Rauth
Article Source: EzineArticles.com
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Currently we are seeing decline rates at, literally 90%, from banks here in Michigan. Meaning that 90% of all commercial loan request that come in the banks doors are being turned down. 50% – 60% of these potential commercial mortgages probably make sense from a traditional underwriting perspective, but the banks are not willing to take the chance as loses continue to rack up and take their toll. Several nationally and smaller local banks have simply stopped quoting rates and will not accept new loan submissions altogether. One particular bank here told all of their commercial loan officers that the bank will not close a single commercial mortgage in 2008 – like it or not.

Borrowers need for commercial mortgages have obviously not gone away either and probably has increased as business look for ways to consolidate debt, launch new marketing programs, etc in an effort to make it through the current “cycle”. Business owners are definitely starting to feel the pinch and are looking at all option that might have not been considered just a few months ago. All in all borrowers are relearning the age old “golden rule” that has seemed to be gone for many years – that is “he who has the gold, makes the rules.”

The SBA commercial mortgage programs might be the answer for many business owners. Because the government guarantees a large portion of the loan it becomes a much safer loan for the bank. For example, on the 504 SBA program the government essentially guarantees 40% of the loan so the bank’s loan to value is at a very conservative 50% (the borrower puts in 10%). On the SBA 7a program, Uncle Sam essentially guarantees 75% of the loan amount, making this a solid option for the lender as well.

However, from the borrower’s perspective these loans are not perfect. One of the biggest criticisms is the lack of refinance options. Businesses have to be in a mortgage that is roughly 2% above market to qualify for a refinance and any cash out portions are heavily controlled. In addition the 504 program only allows purchase transactions so the borrower normally has to “swallow” the 7a terms or might have to get on without the refinance.

The 7a program has been shunned by many for 2 main reasons 1. The guarantee fee, paid to the SBA (out of loan proceeds) is expensive at 2.75% of 75% of the total the loan balance and 2. That the rate floats over prime, adjusting once per quarter. The floating component, which can be a very scary proposition for most business owners, has been the biggest issue.

It pays though to be informed. Not all SBA lenders are the same. For example we work with 2 banks that allow 7a refinances up to 90% loan to value and lock the rate for 5 years and the bank absorbs the 2.75% guarantee fee… Making this one of the strongest programs in the nation.

The SBA program will likely remain the shelter of the commercial mortgage industry as Wall Street goes through the restructuring of the CMBS and CDO markets, which, no doubt will be painful for all involved.

Author: Jeff S Rauth
Article Source: EzineArticles.com
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By now, many of us have heard about the newest kid on the SBA loan block. Known as ARC loans (“American Recovery Capital”), they have captured our imagination and fired us up with boundless hope. But are they real, or simply a well orchestrated mirage? In another article I discuss how these loans work. This article will focus on who is, or is not, actually lending.

We begin with a fundamental undisputed fact. They have the best loan terms ever being produced by the SBA. Who wouldn’t want one? When was last time you were offered a business loan with no interest? Or better yet, with your first principal payment in twelve months? With a 100% loss guaranteed by the Federal government? And to top that off, to be used up to $35,000 for credit cards, conventional loans, and capital leases?

OK, OK, we get the point. Everyone would love to have one. But the problem is banks are not jumping on this loan product. Here is what is actually happening:

The wording of the bill, namely section 506 of the American Recovery and Reinvestment Act, says banks cannot charge any fees. Later pronouncements stated that the loans cannot be sold on the secondary market. The lender would essentially be doing it for free.

From any reasonable estimation, the paper work is onerous. Tax returns, profit and loss projections, year to date financials, net worth, quarterly’s, hardship declarations, etc. A lot of paperwork for $35,000.

As a new program, no one is sure how successful it will be and how it will work.

It started off with a bang, but is now going out with a whimper.

Banks are not stupid. They have figured out how best to use this program. Most are saying “No” altogether, but the ones that are lending are using it exclusively for their existing customers to re-write, at tax payers dollars, their client’s existing credit cards and loans. It is not being offered to new customers. Some banks are not allowing the application unless you open an account with them.

In summary, it is a great loan product but few are lending. Fortunately, there is a similar loan product, called stimulus loans, which are between $5,000 and $50,000, and are actually being loaned by banks. It is wise to look into this alternative as well. Those stimulus loans will be discussed in another article.

Author: Sue B. Malone
Article Source: EzineArticles.com
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As we continue to sift dutifully through the over 1,000 pages of the stimulus bill (American Recovery and Reinvestment Act of 2009), there is one provision that is not getting much attention, but could be very helpful to small businesses. If you are a small business and have received an SBA loan from your local banker, but are having trouble making payments, you can get a “stabilization loan”. That’s right; finally some bailout money goes into the hands of the small business owner, instead of going down the proverbial deep hole of the stock market or large banks. But don’t get too excited. It is limited to very specific instances and is not available for vast majority of business owners.

There are some news articles that boldly claim the SBA will now provide relief if you have an existing business loan and are having trouble making the payments. This is not a true statement and needs to be clarified. As seen in more detail in this article, this is wrong because it applies to troubled loans made in the future, not existing ones.

Here is how it works. Assume you were one of the lucky few that find a bank to make a SBA loan. You proceed on your merry way but run into tough economic times and find it hard to repay. Remember these are not conventional loans but loans from an SBA licensed lender that are guaranteed for default by the U.S. government through the SBA (depending upon the loan, between 50% and 90%). Under the new stimulus bill, the SBA might come to your rescue. You will be able to get a new loan which will pay-off the existing balance on extremely favorable terms, buying more time to revitalize your business and get back in the saddle. Sound too good to be true? Well, you be the judge. Here are some of the features:

1. Does not apply to SBA loans taken out before the stimulus bill. As to non-SBA loans, they can be before or after the bill’s enactment.

2. Does it apply to SBA guaranteed loans or non-SBA conventional loans as well? We don’t know for sure. This statute simply says it applies to a “small business concern that meets the eligibility standards and section 7(a) of the Small Business Act” (Section 506 (c) of the new Act). That contains pages and pages of requirements which could apply to both types of loans. Based on some of the preliminary reports from the SBA, it appears it applies to both SBA and non-SBA loans.

3. These monies are subject to availability in the funding of Congress. Some think the way we are going with our Federal bailout, we are going be out of money before the economy we are trying to save.

4. You don’t get these monies unless you are a viable business. Boy, you can drive a truck through that phrase. Our friends at the SBA will determine if you are “viable” (imagine how inferior you will be when you have to tell your friends your business was determined by the Federal government to be “non-viable” and on life support).

5. You have to be suffering “immediate financial hardship”. So much for holding out making payments because you’d rather use the money for other expansion needs. How many months you have to be delinquent, or how close your foot is to the banana peel of complete business failure, is anyone’s guess.

6. It is not certain, and commentators disagree, as to whether the Federal government through the SBA will make the loan from taxpayers’ dollars or by private SBA licensed banks. In my opinion it is the latter. It carries a 100% SBA guarantee and I would make no sense if the government itself was making the loan.

7. The loan cannot exceed $35,000. Presumably the new loan will be “taking out” or refinancing the entire balance on the old one. So if you had a $100,000 loan that you have been paying on time for several years but now have a balance of $35,000 and are in trouble, boy do we have a program for you. Or you might have a smaller $15,000 loan and after a short time need help. The law does not say you have to wait any particular period of time so I guess you could be in default after the first couple of months.

8. You can use it to make up no more than six months of monthly delinquencies.

9. The loan will be for a maximum term of five years.

10. The borrower will pay absolutely no interest for the duration of the loan. Interest can be charged, but it will be subsidized by the Federal government.

11. Here’s the great part. If you get one of these loans, you don’t have to make any payments for the first year.

12. There are absolutely no upfront fees allowed. Getting such a loan is 100% free (of course you have to pay principal and interest after the one year moratorium).

13. The SBA will decide whether or not collateral is required. In other words, if you have to put liens on your property or residence. My guess is they will lax as to this requirement.

14. You can get these loans until September 30, 2010.

15. Because this is emergency legislation, within 15 days after signing the bill, the SBA has to come up with regulations.

Here is a summary of the actual legislative language if you are having trouble getting to sleep:

SEC. 506. BUSINESS STABILIZATION PROGRAM. (a) IN GENERAL- Subject to the availability of appropriations, the Administrator of the Small Business Administration shall carry out a program to provide loans on a deferred basis to viable (as such term is determined pursuant to regulation by the Administrator of the Small Business Administration) small business concerns that have a qualifying small business loan and are experiencing immediate financial hardship.

(b) ELIGIBLE BORROWER- A small business concern as defined under section 3 of the Small Business Act (15 U.S.C. 632).

(c) QUALIFYING SMALL BUSINESS LOAN- A loan made to a small business concern that meets the eligibility standards in section 7(a) of the Small Business Act (15 U.S.C. 636(a)) but shall not include loans guarantees (or loan guarantee commitments made) by the Administrator prior to the date of enactment of this Act.

(d) LOAN SIZE- Loans guaranteed under this section may not exceed $35,000.

(e) PURPOSE- Loans guaranteed under this program shall be used to make periodic payment of principal and interest, either in full or in part, on an existing qualifying small business loan for a period of time not to exceed 6 months.

(f) LOAN TERMS- Loans made under this section shall:

(1) carry a 100 percent guaranty; and

(2) have interest fully subsidized for the period of repayment.

(g) REPAYMENT- Repayment for loans made under this section shall–

(1) be amortized over a period of time not to exceed 5 years; and

(2) not begin until 12 months after the final disbursement of funds is made.

(h) COLLATERAL- The Administrator of the Small Business Administration may accept any available collateral, including subordinated liens, to secure loans made under this section.

(i) FEES- The Administrator of the Small Business Administration is prohibited from charging any processing fees, origination fees, application fees, points, brokerage fees, bonus points, prepayment penalties, and other fees that could be charged to a loan applicant for loans under this section.

(j) SUNSET- The Administrator of the Small Business Administration shall not issue loan guarantees under this section after September 30, 2010.

(k) EMERGENCY RULEMAKING AUTHORITY- The Administrator of the Small Business Administration shall issue regulations under this section within 15 days after the date of enactment of this section. The notice requirements of section 553(b) of title 5, United States Code shall not apply to the promulgation of such regulations.

The real question is whether a private bank will loan under this program. Unfortunately, few will do so because the statute very clearly states that no fees whatsoever can be charged, and how can a bank make any money if they loan under those circumstances. Sure, they might make money in the secondary market, but that is dried up, so they basically are asked to make a loan out of the goodness of their heart. On a other hand, it carries a first ever 100% government guarantee so the bank’s know they will be receiving interest and will have no possibility of losing a single dime. Maybe this will work after all.

But there is something else that would be of interest to a bank. In a way, this is a form of Federal bailout going directly to small community banks. They have on their books loans that are in default and they could easily jump at the chance of being able to bail them out with this program. Especially if they had not been the recipients of the first TARP monies. Contrary to public sentiment, most of them did not receive any money. But again, this might not apply to that community bank. Since they typically package and sell their loans within three to six months, it probably wouldn’t even be in default at that point. It would be in the hands of the secondary market investor.

So is this good or bad for small businesses? Frankly, it’s good to see that some bailout money is working its way toward small businesses, but most of them would rather have a loan in the first place, as opposed help when in default. Unfortunately, this will have a limited application.

Wouldn’t it be better if we simply expanded our small business programs so more businesses could get loans? How about the SBA creating a secondary market for small business loans? I have a novel idea: for the moment forget about defaults, and concentrate on making business loans available to start-ups or existing businesses wanting to expand.

How about having a program that can pay off high interest credit card balances? There is hardly a business out there that has not been financing themselves lately through credit cards, simply because banks are not making loans. It is not unusual for people to have $50,000 plus on their credit cards, just to stay afloat. Talk about saving high interest. You can imagine how much cash flow this would give a small business.

We should applaud Congress for doing their best under short notice to come up with this plan. Sure this is a form of welcome bailout for small businesses, but I believe it misses the mark as to the majority of the 27 million business owners that are simply looking for a loan they can repay, as opposed to a handout.

Author: Sue B. Malone
Article Source: EzineArticles.com
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From the frying pan into the … Business owners that “elected” to secure a Commercial Hard Money loan for their business are often surprise how quickly the time passes when they are expected to pay off that debt. There are of course only 2 real solutions to this.

1. Sell the property and pay off the loan or
2. Refinance the debt with another lender.

The third option is to call your rich uncle and have him pay it off.

The game plan of course with most business owners is to give themselves some time to restructure their books, business, improve their credit score and essentially put themselves in a stronger position to get a conventional mortgage in a year or two. However, this may not be enough time or the problems were more difficult than expected. We see a lot of people that their primary issue is their personal credit score with the belief that they will increase it dramatically but at the end of the term there score has only moved up slightly. Regardless of the reason, the borrower may not be eligible for a typical conventional commercial mortgage.

One traditional option for business owners to get of the hard money loan is to go the SBA 7a loan route. This is because the 7a program allows credit scores as low as 520, loan to values as high as 90% on refinances and the borrower is allowed to use projections rather than just historical financials which may not show enough income to service the debt.

But this option has had several negatives that make it, almost as low of an option as the hard money loan to begin with. For example the rate normally floats over prime at around 1-2.75%, adjusting once per quarter – with no caps on the rate. In addition, the SBA normally requires a Guarantee Fee of 2.75% of 75% of the total loan amount. So in short, the benefit is that the borrower gets an option besides hard money and the rate is normally lower, depending on what Prime is than what they could get from another hard money lender.

However, not all SBA lenders are the same and it pays to be informed. For example there is a bank that offers the SBA 7a with a 5 year fixed rate at Prime + 1 and the bank absorbs the guarantee fee… As of this writing Prime is at 5.25% so most borrowers rate would be 6.25% fixed for 5 years and amortized over 25 years. This is one of the best commercial mortgages in the industry – regardless if the borrower is perfect or not.

So, if you’re facing a ballooning hard money loan and you operate your business out of a building you own you may consider going the SBA 7a route. Regardless get out there and shop because there are more options out there than your local bank is aware of.

Author: Jeff S Rauth
Article Source: EzineArticles.com
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First of all, most hotel owners go to the SBA programs due to the relatively high level of financing available. Both the SBA 504 and SBA 7a allow 85% loan to cost financing, enabling owners to keep as much cash in their business as possible. Conventional financing is currently capped at around 65% loan to value on purchases, as a comparison.

So, which is more appropriate for your situation?

Traditionally, the 7a is reserved for deals under $2,000,000 while the 504 will go up to $7,000,000. However the lines are blurred. Banks will structure 504’s as low as $1,000,000 and there are a few that will take the 7a up to $3,000,000.

Although both programs are guaranteed for the bank by the Small Business Administration, the loan structures are very different. For example the 504 is set up as 2 loans. The first lien position loan is the Bank piece. It’s make up will normally look something like a 5 or 10 year fixed with a 20 to 25 year amortization as is 50% loan to value. The second lien position loan is the CDC piece which is a 20 year fixed, 20 year amortization loan normally representing 35% of the loan to value. The blended interest rate between the 2 is currently in the loan 7%’s, upper 6%’s.

The SBA 7a in contrast is one loan of which 75% of the balance is guaranteed by the SBA in case of borrower default. It is set up as a fully amortizing 25 year term, with a floating rate (most of the time, we work with a few that offer this as a 5 year fixed). One of the biggest complaints of the 7a is the SBA guarantee fee of 2.75% of 75% of the total loan amount. Keep in mind however that this can be negotiable. There are a few banks that will pay for this fee out of their yield spread if they like your loan request. The rate is currently around 1% plus prime or in the low 6%’s.

Again, the 504 is normally associated with larger loan amounts and offers long term fixed rate financing. While the 7a is more thought of for smaller deals with a floating rate(however there are banks that offer this as a 5 year fixed/25 year amortizing loan).

Another important detail on the SBA 7a is this can be an excellent option for borrowers with “hair”. Meaning more underwriting leniency can be found with this program than virtually all other commercial mortgages including the 504. Credit scores can go down into the 500’s. Debt coverage ratios only have to be a 1.1 (compared to a 1.3) and future projections can be used if current level of cash flow cannot support the proposed debt.

So which is better? You decide.

Author: Jeff Rauth
Article Source: EzineArticles.com
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