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Small businesses get loans in record numbers

A common complaint since the financial crisis began was that some of the Wall Street banks that were being bailed out by the federal government weren’t doing enough to help the mom-and-pop shops on Main Street.

“In 2008 when the recession hit, the impact on small business lending was pretty catastrophic,” said Greg Lehmann, managing director of Biltmore Bank of Arizona. “Not only did you have small businesses struggling with lost revenue and weakening balance sheets, but all the banks were retrenching and looking inward.  The unique element about the Recession was that it hit every business sector; small business, large businesses, banks, etc. Nobody was immune to its impact.”

In 2013, small business owners and entrepreneurs have a little more reason for optimism. So far this year, big banks are approving small business loans at the highest rate in more than two years, according to Biz2Credit, which calculates its monthly Small Business Lending Index using 1,000 loan applications made over its online lending platform.

“With an improving economy, Wells Fargo is growing new lending commitments, providing more dollars to help small businesses stay competitive today and for the long term,” said Jennifer Anderson, business banking manager for Wells Fargo Arizona. “The business owners who see increased demand for their products and services are investing in their businesses now. As business owners become more confident and find more opportunities to grow and improve their businesses, we expect to do more business.”

Wells Fargo literally puts its money where its mouth is. According to SNL Financial, the bank was the nation’s largest lender to small business in 2012, lending $32.8 billion to small businesses.

But Wells Fargo isn’t alone. If you look at recent reports, small business lending is up across the board:

* Biz2Credit found that big banks — those with more than $10 billion in assets — approved 15.9 percent of the small business loan applications in February 2013, up from 11.7 percent in February 2012. Small bank approval rates have also ticked up — 50.3 percent in February, up from 47.6 percent in February 2012.
* Government-guaranteed loans have increased 6 percent year-over-year in fiscal 2013. That represents $9.2 billion, an 18 percent increase over the dollars approved during the same period a year ago. Approvals in the last two years have set Small Business Administration records.

Despite the positive reports, the general belief is that small businesses aren’t getting loans, which isn’t true, said Dee H. Burton, executive vice president of Alliance Bank of Arizona.

“Yes, small businesses can get loans now,” Burton said. “At Alliance Bank, we have always been actively engaged in lending to small business — and we never stopped lending even through the toughest times of the Recession.”

What about the perception that lending standards have changed or tightened? That’s another misperception, bankers said.

“General underwriting guidelines have not really changed over the years,” Burton said. “Unfortunately, the Recession has made it more challenging for businesses to qualify. For most businesses, a reduction in revenue may have resulted in a negative impact on cash flow or resulted in a more leveraged balance sheet. Further, the value of assets which banks often look to take as collateral — equipment, real estate, accounts receivable, etc. — are not at the levels they were pre-Recession. All-in-all, these factors have impacted small businesses’ ability to meet the typical standards under which banks underwrite business loans.”

While Lehmann said banks were more willing to bend on some of the fundamentals prior to the Recession, he said banks always look to cash flow, collateral, and capital levels to make a credit decision.

At Wells Fargo, Anderson said lending standards have remained consistent. Before the bank extends credit, it looks for a business to show:

* Steady cash flow. Cash flow is a key indicator of a business’ financial health and its future prospects. When it can show reliable cash flow, we can see it has the resources to repay new loans.
* Debt load is manageable. Banks want to make sure a business has the ability to take on additional debt and is in a strong financial position to manage its debt payments.
* Good payment history. Payment history provides an important record of its ability to responsibly pay down debt.

As for lines of credit for small businesses, Ward Hickey, business banking manager for National Bank of Arizona, said, “Small business lines of credit are based on  business cash flow and collateral values. As both of these improve for small businesses in Arizona, the underwriting standards will ease and more small business lines of credit will be available.”

As the economy in Arizona continues to strengthen, bankers see a better environment for small business.

“We can point to a number of positive signs in small business lending,” Anderson said. “There is more small business activity in our stores, more small businesses are applying for credit, and loan delinquencies continue to decline.”

As businesses shift from survival mode to growth mode, the outlook for lending to small and medium-sized businesses — which Lehmann called “the life blood of the Arizona economy” — continues to be positive, which will help small businesses grow and add workers.

“Arizona will continue to be a growth state and businesses that have survived this Recession will be able to grow as the state continues to grow,” Burton said. “We see businesses are now investing in items such as new equipment and new expansion, which had been put on hold during the Recession. Businesses are also taking advantage of the current interest rate environment to fund their expansion.”

Lehmann agreed.

“As the economy continues to heal and grow,” he said, “so will the small businesses of Arizona.”

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3 Reasons the Bank Says No

If your application for a small business loan has been denied, you are not alone. In fact, only about 10 percent of the small business borrowers who apply at the bank leave with a loan. Although the bank may give you a song and dance about why you were denied, it usually boils down to some very basic things:

You haven’t been in business long enough: Most banks don’t want to lend to companies that are in the first year or two of business. The success rates of a business that is over two years old are much higher and your banker, by his or her very nature is highly risk averse. They usually won’t take a risk on a very young company. You should also know that they will likely use your company tax returns to determine how long you’ve been in business. With that in mind, even if you don’t have much to report, file your returns starting with the first year to establish your company’s age right from the start.

Your personal credit is bad: Even if you’re trying to establish credit as a business, especially in the beginning, your personal credit and your business credit are pretty much joined at the hip. In fact, unless you have stellar business credit, you’re likely going to have to agree to a personal guarantee. In other words, you will need to cover the debt personally if your business fails to honor the debt. I recently heard from a small business borrower who defaulted on a very large business loan. The commercial property used as collateral had devalued over the last couple of years to the point where seizing it would only repay 50-60 percent of the loan balance. His attorney told him he should prepare for the worst—the bank will likely take everything he owns to repay the debt. On the other hand, if you have incredible personal credit, that sometimes frees up cash for a young business. Like it or not, maintaining your personal credit is just as important to a Main Street business as keeping a good business credit score.

You do business in a sketchy industry: By sketchy, I mean, highly volatile or erratic. Just like some banks specialize in particular types of industries, they will avoid others. The restaurant business is a good example. Because so many new restaurants fail many banks avoid lending to restaurants at all. If you do business in a highly niche or volatile industry you’ll either need to bootstrap your funding for the first few years to demonstrate that your business is viable before you’ll have any success at the bank, or try to find a bank or banker that specializes in lending to companies like yours. You might have to bank out of town (or even in another state), but building a banking relationship with a bank and banker that really understands your business is a good idea and technology, in many cases, pretty much makes bank location irrelevant anyway.

Does this mean that you’re stuck among the 90 percent that walk out of the bank empty handed? Not necessarily. There are a lot more options today for small business financing than just a few short years ago. What’s more, competition among alternative financing is making rates and other terms more and more favorable for small business owners. Of course even alternative lenders are interested in how long you’ve been in business, your personal credit, and your industry—they are simply willing to accept more risk. You should also be aware that the cost of capital could be a little higher with an alternative lender. Consider it  the cost of being a little more risky loan than what your local banker might accept.

At Lendio, we match thousands of small business owners to financing every month—some even end up with a local bank. Francis Bacon said, “Knowledge is power.” Knowing what your banker is looking for and what might be a cause for rejection makes it possible for you to demonstrate you have a plan to either mitigate his or her concerns or help you focus on an alternative funding source that might offer a better chance for success.
Small business evangelist and veteran of over 30 years in the trenches of Main Street business, Ty Kiisel makes small business best practices, tips and advice accessible by weaving personal experiences, historical references and other anecdotes into relevant discussions about leading people, managing a business and what it takes to be successful. Ty also shares his passion for small business every week on Forbes.com.

Credit Unions Big Boose to Small Business - AZ Business Magazine September/October 2011

Credit Unions Could Be A Big Boost To Small Business

Every week while driving to work I notice an increasing number of empty store fronts. A local restaurant, boutique or consulting firm that was there last week, is no longer there today. It makes me wonder how many of those local small businesses could have survived had they applied and been approved for a small business loan at credit unions.

According to the Arizona Small Business Association, there were just about 381,000 small businesses in Arizona in 2008. Think about how many more small businesses there could be if Arizona’s 49 credit unions had the ability to increase their business lending and offer new business loans.

Think about how many jobs that could create. Now think about the potential positive impact that could have on our economy.

Eighteen Arizona credit unions, about a third in the state, provide member business loans.

However, the current statutory cap is set at 12.25 percent of assets.

Many credit unions have refrained from entering the business lending arena because the 12.25 percent cap prevents them from earning sufficient income to cover the cost of starting up and maintaining a business lending portfolio.

Legislation in the Senate, S 509, has been introduced by Sens. Mark Udall  (D-Colo.), Olympia Snowe (R-Maine) and Charles Schumer (D-N.Y.);  and on the House side, HR 1418 introduced by Reps. Ed Royce (R-Calif.) and Carolyn McCarthy (D-N.Y.). If passed, both bills would increase the business lending cap to 27.5 percent of current assets.

If enacted, legislation raising the current statutory cap of credit union small business lending (from the current 12.25 percent of assets to 27.5 percent of assets) could result in $13 billion in new lending and 140,000 new jobs in just the first year nationwide and $144 million in new lending and 1,600 new jobs in Arizona, according to Credit Union National Association estimates.

“We hear from business owners all the time that have solid plans and want to grow, but the big banks won’t even talk to them,” says Paul B. Stull, senior vice president Strategy & Brand for Arizona State Credit Union. “Increasing credit unions ability to lend to these businesses is needed now more than ever. We can get the economy moving again, but the current economic gridlock is holding us back.

“Local financial institutions, like credit unions, know our markets very well. We understand Arizona and we know how to make Arizona loans for Arizona people.”

The unique benefit to this legislation is no U.S. taxpayer dollars would be needed; nor would any new government programs need to be created.

When other lenders pulled back during the financial crisis, credit unions stepped up to the plate and continued to lend. And even though credit unions are the only financial institution imposed with a statutory cap, member business loans have grown 3 percent in Arizona over the past year, compared with other financial institutions which have decreased an average of 7 percent. Many credit unions, however, may soon be approaching the statutory cap of 12.25 percent of current assets.

The average credit union small business loan in Arizona is $220,000; these are indeed loans to small businesses. With so many local small businesses struggling, these loans are increasingly necessary to support our local economy so it can once again thrive.

With less than 2 percent of the market, it’s important to note that credit unions pose no threat to commercial banks. Small businesses are often turned away from commercial banks because they are too small. This is where credit unions have the ability to fill in the gap.

Credit unions have a long history and good track record with their members of making small business loans, and making them prudently.

Since 1997 the net charge off rate for credit union small business loans in Arizona has been roughly one-fourth the average of other financial institutions (0.23 percent vs. 0.93 percent), and in 2011 averaged 70 percent of other financial institutions (0.91 percent vs. 1.29 percent).

Treasury, Obama Administration and our federal regulator, the National Credit Union Administration, are all in favor of this legislation.  Those standing in the way are only impeding a path to sustain the growth of local economies by supporting small businesses and the jobs that they bring to our communities.

“Arizona needs jobs, businesses need loans to grow and now is the time for Congress to increase credit unions ability to meet those needs,” Stull says. “This is a quick fix to create jobs at no cost to the taxpayer. We are asking Congress to prove their commitment to growing jobs and this is one piece of legislation that does just that.”

For more information about credit unions, visit www.azstcu.org.

 

Arizona Business Magazine September/October 2011

Top 5 Reasons To Buy Commercial Real Estate Now - AZNOW.BIZ

Top 5 Reasons to Buy Commercial Real Estate Now

1.      Commercial lending is the best it’s been in decades

Don’t believe what you hear when it comes to commercial loans not being available; they are plentiful and at the lowest interest rates I’ve ever seen on commercial property. Small Business Administration (SBA) loans were once known as long and painful and about as much fun as a root canal! Well, the times have changed and so have SBA Loans. Be sure to get with your real estate broker to locate a dependable and professional SBA lender. You will be pleasantly surprised with the results and products you find.

2.      The Bargains are far and few between

The word on the street is that commercial inventory is high. In some cases this is true, but I can tell you from first-hand experience that certain areas in the Phoenix area, such as north Phoenix and north Scottsdale, have very low inventory. A lot of the inventory you will find may not be suitable for you and may typically be in a bad location, have problems, etc. In other words – the good buys and good properties are nearly gone! Don’t take my word for it; get your real estate broker to pull comps and listings for you. Don’t wait any longer; get out there and find that piece of property you need!

3.      Different commercial verticals are on the rise

Whether it’s healthcare, general office or anchor retail, residential areas that realized significant growth four or five years ago are finally getting the local commercial amenities needed to help these communities thrive. The simple act of going to a grocery store has been very cumbersome for some outlying residential subdivisions. The good news is these empty commercial buildings are finally filling up, and the sellers are offering great incentives to buyers such as tenant improvements, deep discounts and even seller carry-backs in some cases.

4.      Commercial growth and construction will begin to increase again

While the inventory flies off the shelves and vacant properties fill up, commercial construction will once again begin to increase leaving the commercial buyer in a supply and demand dilemma. Let’s face it; we all want a good deal, and if you look hard and long enough you and your commercial real estate broker will find one; but be ready, the odds are you’ll have to act fast to get your offer accepted.

5.      Commercial Real Estate Brokers are in The Know

When you make the decision to start your real estate adventure, make sure you work with a local commercial real estate broker who knows where the deals are, what’s happening with current growth patterns, and what large employers are in the area. He or she should also have in-depth knowledge of the city’s zoning laws where you are looking. These key pieces of knowledge and good negotiation skills are going to be your secret weapon when it comes to getting a good deal on your next commercial real estate purchase.

So, you’ve heard me rant on and on about how you need to buy commercial real estate now. I can’t stress to you enough that the good properties are not getting cheaper, interest rates will likely get higher and commercial construction will, again, begin to pick up leaving the commercial buyer with a sense of, “I missed the boat.”

Stop waiting; don’t miss the boat, and get out there and buy the property you need; and remember to hire a licensed commercial real estate broker for all of your commercial needs.

Happy Buying!

[stextbox id="grey"]These tips are provided by Pete Baldwin, designated broker and owner of Platinum Realty Network with offices in Scottsdale and Flagstaff, Ariz. With over 25 years of experience in business and real estate, Pete specializes in country club communities and second home investments, including large commercial portfolios. He also owns an Arizona branch of a family-owned, Montana-based company Baldwin Log Homes – Arizona Territory and has become the area leader in full- custom, handcrafted log homes in Northern Arizona. For more information, please visit www.PeteBaldwin.com.[/stextbox]

Big money tight times 2008

Big Money, Tight Times-SBA Loans Can Help

By Don Weiner

It may be true that numbers don’t lie, but they don’t always tell the whole story. When the 2008 fiscal third quarter ended June 30, statewide Small Business Administration-guaranteed lending showed a 25 percent decline from 2007 in both total loans and dollars lent, according to the Arizona District Office.

big money 2008

In fact, District Director Robert Blaney says numbers have been dropping throughout the fiscal year, which is indicative of a slowing economy and business owners holding back.

“I think that we’re feeling the effects like everybody else,” he says. Even active SBA lenders have noticed a slowdown.

“The customers are not expanding as much,” says Dee Burton, an Alliance Bank of Arizona senior vice president dealing with SBA and commercial lending. “The customers are, you know, a little bit leery and they’re not expanding their business. So, yes, that has impacted the number of requests that we get to look at, simply because most of the customers are not in high-growth mode.”

Yet a closer look at the SBA’s third-quarter numbers shows some positive trends. Veteran lending jumped almost 70 percent. Rural lending dollar totals were up 93 percent. And loans for start-ups increased 147 percent.

“When the angels cry, sometimes they also sing,” Blaney says.

The upshot for small-business owners is that if they need money and can meet certain requirements, financial help is available.

“Here at Alliance Bank, we look at these type of slowdowns, if you will, as an opportunity to help people get a loan to expand and grow with them,” Burton says. “We’re definitely still in the lending process.”

Thankfully, business owners have no better friend than the SBA. It provides resources for those starting new businesses or expanding existing ones. And it has programs for businesses in need of capital.

When it comes to the financial side, it’s important to be clear: The SBA is not a lender. Instead, it works with banks, credit unions or other entities that make and administer loans. The SBA backs up loans with guarantees, which can run as high as 75 percent to 85 percent depending on the amount borrowed and the type of loan.

“For us, it’s a critical program,” says Lori Stelling, vice president and SBA lending manager for National Bank of Arizona. “We can serve so many more customers by givingthem a loan with an SBA guarantee, because the loans that we do under SBA we would not be able to do conventionally. And there’s a number of reasons for that. If somebody doesn’t quite meet our conventional cash-flow requirements, under SBA we can give them a longer term than we can conventionally.”

“For lenders, I would say SBA is a critical part of what we do.”

The SBA has several different loan programs.

The most common is the 7(a) loan, which serves a range of business financing needs with a maximum amount of $2 million. Another is the SBAExpress program. It makes smaller loans available, but the SBA only offers a 50 percent guarantee. One of the newest is the Patriot Express Initiative, a program that helps veterans and others in the military community with funding and training. Established businesses in need of long-term financing for major fixed assets can turn to the 504 program.

Not all active SBA lenders participate in all programs. Some specialize in 7(a) loans; others offer SBAExpress loans as their primary product. They also have varying restrictions and minimum loan amounts. Many lenders refuse to offer loans for start-ups. Also, only certain active lenders are approved for certain programs, such as Patriot Express. And some are given special status. Especially active and expert lenders qualify for the Preferred Lenders Program, which equates to a quicker turnaround on SBA loan applications.

Visit the SBA’s Arizona District Web site at www.sba.gov/az to find a completelisting of statewide lenders.

The SBA loan process is not that complicated. Take your proposal to a lender and, according to Blaney, if the lender is unwilling to do a loan without an SBA guarantee, they will deal with the agency’s loan processing center.

“It’s as simple as that,” Blaney says. “You have to fill out a couple of more forms for us. I mean, it is the government, we do have a form or two. But it’s not an arduous process. And it has been severely streamlined over time.”

cover october 2008

Before taking that step, however, Arizona small-business owners may want to take advantage of two other SBA programs: SCORE and the Arizona Small Business Development Network. Their experts can assist with business plans and help you understand lender requirements.

John Alig, branch manager and a counselor for the East Valley SCORE chapter in Mesa, says this may mean passing out what a fellow counselor calls “reality cookies.”

“Sometimes that includes telling people things that they don’t want to hear,” Alig says.

He warns that business owners who lack a proper credit rating, collateral and capital do have one thing: a big problem.

www.sba.gov/az
www.alliancebankofarizona.com
www.nbarizona.com