Business Funding Secrets
Business Funding Secrets

Seeking a Small Business Loan?

by Brad MacLiver, authorship and profile at: Google

 

Small businesses create 65% of the new jobs, yet as business owners and finance consultants you are aware that insufficient capital for small businesses loans has been an issue in the recovery of the recession. It is crucial that small businesses receive needed capital, so they can hire more people. Well... President Obama has recently urged banks to make more loans to small businesses and said his administration would do everything it can to push them to do so.

 

The administration has taken steps to encourage small banks to lend by offering them capital at a lower cost than the banks previously had. However, you can be sure that what appears to be an effort to increase small business loans will come with new rules governing the small business financing process - for both the lender and borrower.

 

Issues affecting small business loans:

 

A. Earlier in the year with the credit crunch at its’ peak the government implemented a new rule and denied SBA loan applications when goodwill exceeded $250,000. This stopped the funding for many business acquisitions. They have recently loosened this new rule to allow funding of goodwill up to $500,000 when the buyer or the seller have contributed 25 percent, or more, of the purchase price as equity in the transaction.

 

Goodwill is the portion of the business value that is beyond the physical assets. Business owners put years of work into establishing and building their companies and when it is time to sell the business, a big portion of the selling value is the goodwill of the company. The succession of the business to a new owner is vital to the economy. If an owner decides to close the business instead of being forced to take less than the fair market value, due to government financing regulations, then the economy loses jobs and a contributor to the GDP. Allowing  the appropriate acquisition financing will facilitate the continuation of the business and jobs.

 

B. The business efforts of Prosper.com and Loanio.com were halted for regulation procedures. Both of these are online peer to peer lenders for small loans. As these companies work through the government’s red tape they will be back online. During the credit crunch, this has taken additional capital out of the lending market.

 

C. The SBA frequently files legal briefs on behalf of small business loan regulatory disputes. Therefore, the SBA has always been managed by a Chief Counsel - an attorney. The recently appointed Chief Counsel of the SBA is not an attorney and possesses some controversial views. We will need to wait and see if this will affect future changes in the lending practices associated with banks and the SBA process.

 

D. There are efforts to beef up the staff and resources of the SBA, so they can assist banks in making more loans. Unfortunately 60% of the banks don’t currently work with the SBA.

 

E. The America’s Recovery Capital Loan Program provides interest-free loans of up to $35,000 to qualifying businesses (restrictions apply). Good for small businesses that can qualify. However, the SBA is requiring the lending banks to perform the paperwork and advance the funds, but earn very little on these loans. Banks are still “for profit” businesses. This has resulted in fewer banks willing to join the program - and fewer loans to small businesses.

 

Tips:

1. Small business loans from a bank are often determined by computerized credit scoring or low level bank staff making decisions based on simple debt ratios. Develop a relationship with the bank manager to gain some personal attention when seeking a business loan.

2. Make sure that the appropriate SIC or NAICS code is used on your application. Wrong coding could cause the computerized systems to reject an application.

3. Check your credit for errors and make corrections, before you approach the bank.

4. Make sure you answer all questions with clear and concise answers. Baffling with Blue Sky won’t get you the money.

5. For funding requests less than $100,000, banks using computerized loan processes may not require a business plan.

6. If your funding request is rejected don’t settle for the computer results. Ask for a human review.

7. Lenders of small business loans don’t have expertise in every industry. When your funding request is for a niche business, seek out lenders that understand that niche.  

 

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