Tag Archives: SBA loan
Don’t worry about it, it’s no big deal. Those are famous last words in any business negotiations, particularly coming from a lender to a borrower (or vice versa, to be fair). A savvy borrower who understands the terms that the lender wants in a loan agreement, must be ready to make some hard choices.
Borrowers must try to imagine the worst case scenario in their business ahead and reflect on how the lender’s terms will impact the business. Sometimes there can be ways to give the lender adequate protection without the full- scale surrender that is often described in the loan agreement. Read More
Across the media I keep seeing the discussion going back and forth about who or what is the culprit for tight business credit and a continuing sluggish rate of economic growth. Depending on the guru you tune into, the average projected 2011 growth of the Gross National Product is only about 3%, meaning that new job growth will remain lethargic for the foreseeable future. At that pace, it may take 15+ years to return to the same employment level enjoyed prior to the housing bubble.
So where is the money to fuel a more robust economy? Let’s look at all the players in that cycle: Read More
Remember the imagery of an ostrich with its head buried in the sand? That is sort of how I view the average American taxpayer. They may be opinionated, but choose to remain purposely blinded to what is really happening around them. It is much easier to just not see anything in the periphery and keep to ourselves, or maybe just vent about what we think we don’t like and won’t try to understand.
The Concord Coalition (www.ConcordCoalition.org) was formed in 1992 to create a bi-partisan dialogue on fiscal responsibility by then U.S. Senators Warren Rudman (R-NH) and Paul Tsongas (D-MA). Obviously it has not made enough progress in the years since to raise awareness of the need to reform the U.S. budget or its drunken propensity to continue an endless cycle of spending growth and income reduction. Read More
Incredibly, thousands of loans are made each day to borrowers who don’t know anything about their deal except that payments are due and the collateral will be sold if they aren’t. There is so much more the borrower should know.
Loan agreements are full of fine print which provide for many potential situations which may befall the borrower. Naturally these terms are designed to protect lender at the borrower’s unlimited expense.
Knowing about these terms does not mean that any of them will be changed or negotiated away, but the loan terms hidden in the fine print can be quite devastating if things don’t work out right. Knowing the consequences of your actions or the risks you take can sometimes make decisions easier to decide. Read More
Sometimes when negotiating a loan, the lender tries to either stretch to make the deal work by enlarging the playing field. Or more sinister, they see an opportunity to reduce their risks by testing the idea of more personal guarantees on the loan than may be necessary. The personal guarantee of a wealthy, albeit uninvolved family member, is not easily ignored by many lenders.
Just say no.
Mixing business and family is a difficult proposition when all parties are voluntarily involved. Letting the lender reduce you to begging a family member to borrow the money for you is the wrong way to start a relationship. If your deal won’t be approved with only you, the business owner, endorsing it, just don’t borrow the money. Read More
I keep reading about the debate playing out across the country among the many interested parties. Who is the culprit behind tight credit and a continuing sluggish economy? Some say banks are still too tight with their credit decisions. Others cite a lack of demand for credit as the problem with growth. My answer: It depends.
It is demonstrably true that hundreds of banks continue to struggle with capital issues, and frankly don’t have the money to lend. It is also true that many banks do have sufficient funds to lend, but are still holding a tighter grip on lending criteria, and only funding the best deals. And both sides can accurately point to a zealous regulatory environment, which perhaps didn’t act forcefully enough when the bubble was inflating, but are darn determined to keep it flat now. Read More
Many small business owners seeking financing have recognized the value of using professional advice of an intermediary to help navigate the path to financing. But caution is needed when you make this choice, because many business people have become victims of inept or unscrupulous loan brokers – loan brokers who either waste valuable time to conduct a hopeless search for capital or who collect fees that are undeserved and never earned.
Loan consultants play an important role in today’s banking environment. With the consolidation of hundreds of banks and the introduction of many of new financing products, entrepreneurs cannot be expected to keep track of the constantly changing financial marketplace. Read More
It never failed to amaze me how flustered some very experienced business people became when I responded to their business loan request by saying, “No, the bank can’t make a loan to a bankrupt business.”
After catching their breathe, I got an earful about how they lived in million dollar homes, had children in private schools, and had lots of cash in savings and investments, etc.
And it was true – they did. They had drained a largess of resources from the very entity that produced it – their small privately-owned business. First they drew large personal salaries, and maybe offered another to a spouse or even children who may have contributed nominal labor. Read More
This blog is last part of a short mini-series on the “art of lending” that covers the 5 C’s of credit. Lenders test each loan application against five elementary lending criteria to determine the strength of the proposed deal. There is no magic formula or defined minimum standard of these criteria for the borrower to attain. In order to consider the loan request seriously, the lender has to be comfortable with the combined, subjective strength of these criteria.
Character may be the most important assessment the lender can make about the loan applicant. Regardless of the positive attributes of the borrower’s capacity, capital, collateral, and credit, if the borrower does not demonstrate integrity and appear trustworthy to the lender, any proposal will be refused.
Character is the most subjective criteria. The criteria is not only difficult to define, it is difficult to assess. There is no checklist available to guide the lender’s sensitivity to quantifying someone’s good character, particularly when the other party is a new acquaintance.
The lender has to observe and study the borrower to evaluate the personal qualities and characteristics. The lender must watch for potential flaws that may be detected in the attitude, conversation, perspective, or opinion of the borrower about business, ethics, responsibility, and commitment.
The borrower’s character is important because it reveals intent. If the loan officer senses that the borrower has an ambivalent attitude toward fulfilling responsibilities under the proposed business deal, there is a character problem. The loan officer must believe that the borrower embraces a moral obligation to repay the loan, superseding even the legal agreement to do so.
When a lender does not feel comfortable with the character of a borrower, this information may not be directly communicated to the borrower. The loan request will often be denied for different reasons, because the loan officer may have difficulty defending a subjective decision without definitive proof. This ambiguity is part of the intangible matrix of underwriting commercial loans.
This blog is part of a short mini-series on the “art of lending” that covers the 5 C’s of credit. Lenders test each loan application against five elementary lending criteria to determine the strength of the proposed deal. There is no magic formula or defined minimum standard of these criteria for the borrower to attain. In order to consider the loan request seriously, the lender has to be comfortable with the combined, subjective strength of these criteria.
The lender must evaluate the applicant’s previous experience as a borrower. Studying the borrower’s credit history discloses whether the business or the owners have paid previous borrowings as agreed. The credit report also discloses whether the business or individuals have ever had difficult financial events that appear on public records. These events include civil judgments, unpaid tax liabilities, general execution liens (fifa), or protection under bankruptcy.
While clearly not an exclusive indicator of how well the business will perform in the future, this information relates to how the borrower has performed in the past. Negative information in this category may be indicative that the borrower is unqualified for an extension of credit or reveal that the borrower has not overcome earlier difficulties. Poor performance with previous lenders may indicate that the borrower does not take the responsibility of repayment seriously.