Business loans-Business financing

Business Loans Rise

Small businesses at the Shore were approved for more loans at the end of last year, the U.S. Small Business Administration said Wednesday, in a sign that the tight credit standards may be thawing.

Forty-nine Monmouth and Ocean county businesses received SBA-backed loans worth $18.1 million during the last three months of the year, up from 35 businesses that received $16.7 million the same quarter the previous year, the SBA reported.

"We do see trends that indicate the worst is behind us, and we're hopeful this trend we're establishing continues on," said James A. Kocsi, director of the SBA's New Jersey district.

Small-business lending plummeted the past two years as banks, stung by bad loans, tightened their standards. It made it tougher for small businesses to buy equipment, pay workers and fuel the economy.

To jump start lending, the federal government as part of the economic recovery act provided $730 million to the SBA at least partly to eliminate and reduce fees and guarantee up to 90 percent of a loan. (The SBA previously guaranteed 75 percent to 85 percent of a loan.)

The incentives will remain until the end of February. But Congress may extend them through the end of the year.

Small-business owners say the credit market remains tight. Seaside Materials Inc., a Long Branch company that sells masonry building supplies, recently was forced to search for another lender after its long-time bank called in its line of credit, said Anthony Damiano, the company's chief executive officer.

The company saw sales fall 60 percent during the recession. And even though it cut expenses just as rapidly and never defaulted on a loan, it couldn't convince other banks to work with it, Damiano said.

The company, however, caught a break when Basking Ridge-based Affinity Federal Credit Union agreed to lend it about $580,000 — most of which will be guaranteed by the SBA.

"I found (Affinity) to be very communicable, especially in these times, because a lot of banks aren't doing anything right now in terms of looking out for small businesses," Damiano said.

TD Bank remained the biggest SBA lender, both at the Shore and in New Jersey. But three other banks that aren't household names — BNB Bank, Indus American Bank and Innovative Bank — were among the biggest SBA lenders in New Jersey.

Kevin McCloskey, vice president of lending at Affinity, said the credit union became an SBA-approved lender just last year, hoping the banking industry's credit crunch would allow it to make more business loans — and add customers.

All but one of its new customers "are being asked to leave the bank they're at now," McCloskey said.

Small-Business Loans

Advocates for boosting small-business lending have found lots of support in Washington, from Congress to President Barack Obama. But after a year of jawboning, progress has been hard to come by.

That could change if a proposal backed by U.S. Rep. Gary Peters, a Bloomfield Township Democrat, to generate $50 billion in credit for small businesses becomes part of an expected jobs bill congressional Democrats are likely to launch soon.

In a town hall meeting Friday in Elyria, Ohio, Obama said he was pressing his administration to explore ways to get banks lending again, saying they "are still not lending to small businesses enough" due in part to concerns from regulators.

"There should be a discussion about whether or not we've seen the pendulum swing too far," Obama said. "Used to be they would lend anybody anything; then they lost all this money, and now they won't lend people with good credit anything. That's not good for the economy."

Small businesses, the majority of which have five employees or fewer, account for about half of the jobs in Michigan's economy. Before the downturn, the 26 million such businesses nationwide drew $718 billion in loans a year -- everything from property mortgages to credit cards.

Banks cut small-business lending

The recession clearly has drained some of the credit available for small firms. According to U.S. Treasury data, the 22 largest banks that have taken federal aid under the financial industry bailout have shrunk their small-business lending by $12.5 billion since April, with $1 billion cut in November alone.

The National Federation of Independent Business, the largest lobbying group of small businesses, said in its December survey of members that 15% saw credit standards tightening.

Yet many experts say the problem stems from a lack of demand among small businesses, which don't need to expand in the throes of a recession. Only 8% of the firms in the same poll reported any problem with getting the financing they needed, and just 4% cited financing and credit as their top business challenge.

Business Owners Vie For Loans

Terrence Gidney moved his business, Affordable Scrubs & Stuff, to Main Place Mall a year ago, with financial help from a minority business loan program.

"I'm still in business, and that says a lot in the middle of a recession," Gidney said. He sells designer and traditional scrubs for the health care industry, as well as medical accessories and chef coats.

Gidney received a $50,000 loan in 2008 from the Minority Entrepreneur Grant and Loan Program. It is run by the Regional Development Corp., the loan division of the Erie County Industrial Development Agency.

Gidney was one of 10 loan recipients in 2008. Now a new group of applicants are being considered for the $500,000 program.

Fifty-five applicants have made the first cut, and they will face tougher scrutiny of their ventures and finances. The program targets high-risk businesses being launched or expanded but that do not qualify for traditional bank financing.

Nine of the 10 recipients from 2008, including a gourmet catering firm, a bowling center and a day spa, are still operating and employing 23 people, according to the ECIDA. The one that failed, One Sunset restaurant run by Leonard Stokes, became a source of controversy.

For the current edition of the program, 89 applications were received by the mid-December deadline, and the field was whittled to 55, said Karen Fiala, the ECIDA's tax incentive product coordinator.

The 55 applicants that made the preliminary cut will have to submit a detailed analysis of how they would use the ECIDA funds, as well as business plans. The recipients will be announced in mid-March.

The applicants include minority businesses in Buffalo, East Aurora, Cheektowaga, Grand Island and Getzville, with ventures including construction, a day care, and a bookstore.

Only a handful of the 55 applicants might end up receiving loans, Fiala said. "We have to take a long, hard look. Does it make sense? Do they have a good plan? Do they have the experience?"

In 2008, the pilot program attracted 70 applicants and 28 made the preliminary cut. A loan committee approved loans for 11 of them, but one later withdrew. The 10 ventures were awarded about $400,000 in low-interest loans and grants.

Gidney said the loan he received through the ECIDA program helped him move his business from Elmwood Avenue to the mall location a year ago. The low interest rate and terms make it feasible for a small business such as his to pay back the loan as he tries to build his business, he said.

Gidney said he is trying to spread the word about his business into the suburbs. That would benefit downtown by bringing more customer traffic there, he said. But as a start-up, his resources are limited.

While Gidney's business forges on, the sole loan recipient from the 2008 program that has closed, One Sunset, drew criticism.

City Comptroller Andrew A. SanFilippo faulted the ECIDA for not performing its "due diligence" on One Sunset before approving that $50,000 loan. The agency defended its actions, saying it had made its decision based on the best information it had available at the time.

A Buffalo News investigation last year found the agency had overlooked public records showing an unpaid vendor won a court judgment against the restaurant before the loan was dispersed, and that two other businessmen had already sued the restaurant. One Sunset had also racked up $17,376 in unpaid sales taxes.

Current applicants to Minority Entrepreneur Grant and Loan Program can expect more-extensive reviews this time.

"We're expanding our due diligence this year to include a more intense credit check," Fiala said. That will include research into matters such as liens and judgments, she said.

The finalists will also be subject to another financial review within 30 days of receiving their funds. And program participants will have to complete an approved business "mentoring" program, to help them avoid potential mistakes in running their operations.

Business Finance

Be the decision maker. There is nothing wrong with getting advise from advisors when trying to close a deal and arrange business acquisition financing. Just don't turn all the decision making authority over to the advisors. Take all the counsel as input and then decide for yourself what issues to bend on and which issues are sacred cows.

Select Deal Makers. Make sure that advisors you chose to work with (lawyers, accountants, business consultants) are deal makers not deal breakers. A working definition of a deal maker is simply someone who has a lengthy track record for closing the type of deal you are trying to consummate. These individuals have a combination of the right technical ability, relevant experience, and ego control necessary to truly add value for the money you're going to have to pay them if the deal closes or not.

Pre-Qualify the business acquisition financing requirements. Make sure that the buyer has the means to acquire financing. The buyer typically needs to have 1/3 to 1/2 the purchase price as a down payment, depending on the industry and the hard assets being acquired. Good credit and a solid net worth can also be requirements for suitable financing.

The seller needs to be prepared to work with different financing options before getting too deep into due diligence. Will a vendor take back be required? How long is the vendor willing to assist with the business after sale? How much working capital is the vendor draining out of the business?

Consult with a financing consultant. Whether you're the buyer or the seller, there is great value to talking the potential deal over with a financing consultant before your accountant and lawyer start running up their tab respective tabs.

From the seller's point of view, a financing consultant can be invaluable in providing insight as to how to get the business in a financial position. From the buyer's point of view, a financing consultant can provide guidelines as to lender requirements. In either case, there is no sense going through all the potential aggravation of closing a deal if its unlikely to attract the necessary business acquisition financing capital.

Become blood brothers (or sisters) with the other side. A close working relationship between the buyer and the seller can stop the deal from going down bunny trails and sitting unnecessarily on an advisor's desk. Always listen to your chosen advisors, but remember that as buyer and seller, its your collective deal, and you're the one's who will make or break it when the issues are cloudy and the timelines are dragging on.

Set a realistic time frame. Negotiating the deal, going through due diligence, getting advisor input, writing up the deal, and getting financing in place normally takes more time than first estimated.

If the change of control is time dependant due to the business sales cycle, year end, etc., then make sure you have sufficient time to get the deal done before you start, otherwise the only people that will be making any money will be the advisors when the deal can't get closed on time.

Business Financing

Business acquisition financing is right up there with your basic root canal. It may be necessary but it most certainly is not fun.

In fact the overall process for acquiring an ongoing business can be a mind sucking affair, very expensive,and in the end unfruitful.

Why is the process so frustrating?

The answer in many cases is the advisors involved.

That's right, the very people that are paid to complete the deal, are the same ones that kill it.

Let me explain.

All deals have two sides, a buyer and a seller. Both sides have to rely on their third party advisors for advise on such things as legal, valuation, taxation, finance, etc.

Unfortunately, the business acquisition financing issues do not tend to be dealt with in the construction of the purchase and sale agreement, creating sometimes unworkable issues for potential lenders.

When buyers and sellers rely heavily on advisors, there is automatically less chance for the deal to succeed. Why? Because it can be impossible for both sides to agree or reconcile issues between the advisors without great cost and time delays.

The advisors are commissioned by their clients to protect the client's best interest. But in this process of protection, it can be very difficult to get both sides to agree on all issues as both groups of advisors are coming at each issue from the opposite point of view. The result is a deal between buyer and seller in principal that can't get closed.

Even when the purchase and sale agreement does get finalized, there may be terms and conditions that are now not acceptable to your source or sources of business acquisition financing.

If the agreement has to be reworked for the lender, this can be the beginning of the end as it may have already taken the powers of heaven and earth to get everything agreed to and signed off the first time. Making revisions can be like opening Pandora's box with no hope of ever getting it closed again.

If this all sounds bleak and depressing, it certainly can be.

The stark reality is that if you're going to buy or sell a small business you need to self educate yourself to some degree before you get started.

Here are some points to consider:

Approach the deal on a Win - Win basis. Too often in deal making, one side is trying to pull a fast one on the other and try to come out better that they otherwise would have.

This is a dangerous strategy because no matter what you and the other party agree to in principle, the advisors will weigh in at some point and likely uncover any inequity that was created in the negotiations.

Not only does the deal now become more complicated as a new basis for agreement needs to be established, but there may also be distrust forming between the parties, either of which could end up killing the deal.

Working Capital Advances for Businesses

Working capital is essential for the running of any company. Merchants often require additional working capital in order to meet unplanned needs. One method of attaining this working capital is to approach a company like Capitallynk to raise the working capital as a loan.

The advantage for companies that seek small working capital loans is that merchant advance cash schemes often do not require any collateral from the borrower. There are no restrictions placed by the lender as to how the money should be utilized within the business. Such companies do not levy hidden fees or up-front costs on such transactions.

Companies seeking working capital loans opt for such funding schemes as they have a number of benefits. Companies that have otherwise been rejected from business loans can apply for a working capital loan on a credit card or debit card account. There are no fixed payments or predetermined time frame for this lending scheme.

The entire procedure is automated and hassles free. The loan is granted by the customer selling a dollar amount of future debit or credit card transaction sales at a discount to the loan provider. It is this guarantee that acts as a security and does away with the need for collateral.

There are two main requirements that lending companies impose on businesses applying for loans. The first is that the company should have been in business for a stipulated period. The company will also need to earn a certain percentage of its earnings through credit card based transactions every month to qualify for this scheme.

As each sale is settled, a percentage is automatically deducted and the issuing company is repaid. It is due to this reason that there is no fixed repayment schedule. Repayment is thus directly related to the earnings of the customer.

Business cash advance schemes allow companies to meet sudden demands for their products when working capital or ready materials may be in short supply. Such a loan ensures that the company has enough cash available to be operative and yet competitive at the same time.

CapitalLynk provides such working capital advances to companies that have been in business for four months with an average of $5000 in credit card transactions. Approval for loans is done within 24 hours and funding is provided within seven working days