Advice On Loan

By Charles H. Green

It’s October 1 and once again there is no fiscal budget to provide the financial authorization to pay for a federal government, but this time Congress failed even to enact a continuing resolution to keep the government operating. As a result, all operations not deemed ‘essential’ were halted effective midnight last evening.

According to Bloomberg BusinessWeek’s account of the first federal government shutdown in 17 years, it means that about 800,000 government workers are being furloughed. In addition, funding is suspended for a wide array of services, including contracts that government agencies award to small business owners.

This means that loan guaranty programs for small businesses are immediately impaired as of today. The SBA, which provides tens of billions of loan guarantees to banks that finance thousands of entrepreneurs each year, is forced to furlough roughly 62 percent of its 3,500 employees as per the agency’s contingency plans for the potential government shutdown that was disclosed last week (SBA Contingency Plan) on the agency’s website.

While the loans already guaranteed by the SBA are not be affected, all review and approval of new loan backing comes to a standstill until Congress passes legislation to fund agency activities. SBA programs to foster international trade, help small firms win government contracts and assist veteran-owned businesses when operating.

SBA lenders have been in this situation previously, as have most federal agencies. It is serious but not as dire of a situation as the subsidy fights that Congress went through each year prior to 2004 over the 7(a) loan program. That program was shuttered three times in 1995 alone due to lack of funding.

And with all the cajoling going on to get an annual budget approved, Congress continues to ignore the proposed 504 Refinance extension legislation, which was cited by dozens of SBA lenders in SBFI’s SBA Lender Optimism Outlook as desperately needed to spur Main Street borrowing.

Read more at Bloomberg BusinessWeek.

By Charles H. Green

SBA lenders have indicated they are optimistic about business prospects for the Small Business Administration’s 2014 fiscal year, which starts October 1. Almost 90% of those responding to the SBA Lender’s Optimism Outlook expect that their dollar volume of SBA loans will increase in 2014 and 60% believe they will improve the application-to-approval ratio at their bank.

Last week, the SBFI and Coleman Report distributed a survey to gauge the business outlook among SBA managers, business developers, underwriters, service providers and other vital participants who play a role in turning SBA applications into capital. The survey asked respondents to grade their 2013 business lending performance and then project the direction of their 2014 results.

Other survey results:

61% indicated they were satisfied with program support and promotion by the SBA (37% were not, 2% did not know).

58% indicated they expected the U.S. economy to expand during 2014 (26% did not, 16% did not know).

39% indicated their company would be hiring more people to facilitate small business loans in 2014 (40% were not, 21% did not know).

Opinions about the most significant barrier to funding more loans in 2014 were evenly divided:

23% cited Restrictive Lending Policies;
21% cited Depressed Borrower Demand;
19% cited SBA Procedures;
26% said All of the Above;
11% said None of the Above.

For a complete copy of survey results, click on SBA Lender Survey.

By Charles H. Green

Technology advancements over the past 20 years have had a significant impact on busines and industry, which has led to major changes in output, costs, productivity, employment, marketing and connectivity among other business metrics. Small companies have often been on the leading edge of these changes because they are more nimble and will often realize faster improvements (and profits) by adapting sooner.

The National Small Business Association (NSBA) recently conducted their second survey of technology adoption and dependency among their members and posted some interesting results. Among their key findings was a marked increase in usage of laptops also, from 67 percent in 2010 to 84 percent in 2013.

An interesting tangential finding was the drop in the number of small-business owners who pay an outside firm to handle their information technology (IT), which they asserted was likely driven by two factors: the economic challenges small businesses have faced in the past few years; and improved IT platforms and the growing reliance on–and therefore need to understand—these technology tools and platforms.

Other results from the small companies surveyed:

41% use tablet devices (which were not available during the 2010 survey);

60% allow some employees to telecommute (an increase of over one-third);

50% don’t have broadband or fast-speed internet because it’s still not available;

27% still don’t use social media to promote themselves.

Why is technology a ‘finance issue’ that should concern business lenders? Because it represents a harbinger of the future horizon for the success of that business.

1. Adaptation of new technology signals better productivity is ahead at a cheaper price;

2. Smaller firms can compete more effectively when visable through the web and recognized in social media. Without breaking into these frontiers, that business will be lost to anyone trying to find it.

3. Mobility will be the most heavily-travelled portal through which future consumers conduct business.

Read more at NSBA.

By Charles H. Green

Gallup’s weekly survey of Americans’ confidence in the U.S. economy improved slightly over the past two weeks. Their U.S. Economic Confidence Index was -15 last week, similar to the -16 from the previous week, but up from -18 in the week ending Sept. 1. However, Americans continue to be less positive about the economy than they were in May and June.

Gallup’s Economic Confidence Index is based on Americans’ ratings of current economic conditions in the U.S. and their assessments of whether the economy is getting better or worse. The three-point increase in the overall index over the past two weeks is solely due to Americans’ rosier economic outlook.

Last week, 42% of Americans said the economy is getting better and 53% said it is getting worse, for a net economic outlook score of -11, six points higher than the -17 in the week ending Sept. 1.

Seventeen percent of Americans rate current economic conditions as “excellent” or “good,” while 35% rate them as “poor.” That results in a -18 net current conditions score, identical to what Gallup found for the week ending Sept. 1.

Economic confidence among consumers and businesses bode a directly relationship to short terms and long term economic activities such as household spending, large purchases and even marriage among consumers, and capital acquisitions, borrowing and investment among businesses.

Read More at Gallup Economy

By Charles H. Green

A review by the U.S. Government Accountability Office (GAO) found that U.S. Small Business Administration’s (SBA) Patriot Express loans, valued at $703 million, have a higher default rate than other loans under SBA’s other loan guarantee programs. The GAO report also said that losses for Patriot Express have exceeded its income.

“The Patriot Express program’s overall default rate was significantly higher for smaller loans, especially for loans below $25,000 (20 percent),” according to GAO. And it was revealed that one lender accounted for more than 64 percent of these smaller loans and experienced higher default rates than the remaining lenders.

From 2007 through 2012, losses in the Patriot Express program exceeded income by $31.1 million (not accounting for future fee revenues or funds recovered from loans in default). Patriot Express has continually operated in the red.

In 2010, SBA extended the Patriot Express pilot through 2013 to allow time to evaluate the effect of the program. To date, SBA has not evaluated the program or established a plan of what it intends to do to evaluate it. SBA officials reported to GAO that they “focused their resources on evaluating 7(a) loans because there are many more of them and, therefore, they pose a greater risk to SBA than Patriot Express loans.”

GAO also asserted that SBA’s internal controls over lenders may not provide reasonable assurance that Patriot Express loans are only made to eligible members of the military community and that only these members benefit from loan proceeds. This finding may lead to more direct consequences to participating lenders as this evaluation continues.

Read more at GAO