Capital Strategies

I am a big fan of SBA loans. I’ve originated many in the last 20 years as a business broker and former commercial banker. Without these loans, my “main street” business clients would not have been able to sell their businesses to new owners or expand. We are suffering through the worst economic crisis since the Great Depression. During the Depression, interest rates were too high and no one could afford to borrow even though there was plenty of liquidity. Today the problem is different. Rates are low yet liquidity is even lower for banks. Here’s why banks aren't willing to open the credit spigot: 1) Unhealthy balance sheets. Just because a bank may have paid back TARP, it doesn’t mean the bank is “healthy”. In many cases, problem loans are not being addressed because doing so would cause write-downs which erode bank capital. The regulators know that stepping softly is key to rebuilding the economy and the banking system. Banks are encouraged to term out loans for longer ...

The health care reform debate is getting very loud. If you haven't watched the recent videos of the town hall meetings, check it out on the link in the title of this blog. I'm not sure what the answer is but I know one thing for sure, in order to understand a situation a considerable amount of time needs to be devoted to research and analysis before making a decision. I think that President Obama is rushing the health care bill through Congress. So is it supposed to be "health care reform" or "insurance reform". What is it exactly? And how is it going to be funded? Like many other bills that are passed, there are unintended consquences associated with them because no one took the time to consider the impact. So, I think that if health care is truly so important, shouldn't we take the appropriate time to understand all the issues? Anytime one side wants to rush the process, you can just guarantee that the other side is going to get screwed. That, Mr. Pres...

I know I've been on a "kick" lately making comments regarding banks and SBA loans. It's probably a curse of some sort since I was a banker for many years. I promise I'll write some stuff about buying and selling businesses too. It's just that getting financing is so KEY to putting a buy/sell transaction together. If we don't figure out how to fix this and get credit flowing and businesses moving again, its going to worsen the situation. Today, I saw a headline in the Wall Street Journal from an interview with Karen Mills, the SBA Chief. Here's my response to the article. I strongly disagree with Ms. Mills when she says the "health care” is the number one concern of small business owners. I work with small business owners that want to sell, buy and finance their businesses. I can tell you, the only reason health care comes up in the conversation is because business owners are terrified about what the Obama administration is attempting to do with he...

I saw an article in today's NY Times Blog. I couldn't resist replying...even though I don't live in New York. Senator Frank Lautenberg (D) of New Jersey is making the rounds and asking small business owners what their needs are and if they are aware of all the services that the Small Business Administration provides. They are listening to business owners tell about issues regarding the lack of financing....specifically SBA loans. This is a good start and there needs to be more of this by our elected officials. And they need to keep digging deeper. Here's the comment I sent to the Senator today. "I am glad that you are attempting to get to the bottom of the small business credit crisis. I am a Business Intermediary - I work with business owners to buy, sell, grow and finance their businesses. And I am quite familiar with SBA loans and bankers (having been one myself for over 20 years and a graduate of Pacific Coast Banking School). Here is my opinion on what is happ...

Today’s article on Heraldnet.com says: "Congress is puzzling over how to improve lending rates to small businesses in light of a lackluster performance from loan programs through the Small Business Administration." The crux of the small business credit crunch is not about interest rates or lack of investors willing to purchase loans….although both play a part….its about credit quality. There is a key piece of the pie that no one is talking about. That is: investors want to buy perfoming or “seasoned” loans that have been in good standing for a significant period. A “seasoned loan” is one where the borrower has made payments on time since the loan was originated, the collateral value hasn’t deteriorated and there are generally no issues or problems. That means that any SBA loan made today would generally require 12 months of good performance before an investor would be willing to purchase it at the current premium. However, if during that “seasoning period” the borrower goes i...

Good News for those of you contemplating starting (or buying) a business right now! According to a New York Times article, businesses are NOT more likely to fail during a recession. Yippee! The article says that those started during a recession have just as much chance of survival as ones started in good economic times. Okay so what's the downside? Well, only 48.8 percent of new businesses started are still operating five years later. And from personal experience, I believe this is accurate. So why don't more businesses survive past the five year mark? Here's what I think (and my opinion is based on numerous analysis of small business owners financial situations) - Half the businesses started don't last beyond 5 years because: 1) the owner runs out of funds and can't borrow more. The owner may have a great product or niche but the learning curve in starting and running a business was greater than the cash flow generating ability of the business. 2) the owner is tire...

There is talk from Washington about giving small business owners a “bailout”. This is a step in the right direction. However, some additional thought needs to be undertaken before rushing headlong into approving another non-workable government solution. Here are some key things to remember - the Small Business Administration does not make loans. The SBA provides a guarantee to banks that make the loans. If banks aren't going to change their standards to approve these "rescue loans", then there is no rescue. And I know from personal experience that bankers superimpose their rules over that of the SBA. (I was a commercial banker for over 20 years). Just because the SBA says it’s possible to make a loan a certain way ….it doesn’t mean that bankers will make the loan. And let’s not make the proposed small business bailout a paperwork jungle. The widely touted ARC "America's Recovery Capital" (SBA loan of $35,000 to small business to help them stay curr...