Thursday, July 1, 2010

SBA Financing

Yes it is. We believe that we have hit bottom and are on the way back to recovery. Consumer spending is up, the secondary market for SBA loans is robust and banks that are healthy, seem to have regained their desire to lend. However we are talking about a start here, not a full fledged recovery - yet.

The challenges borrowers have faced in the last 2 years in terms of getting an SBA loan have been fierce and many. For example, the tightening of banks underwriting parameters, the national drop in property values, the decline of most banks plain desire in doing any type of commercial loan, as well as the weakening of borrowers businesses themselves, have caused many SBA loans to result in decline.

Of all the challenges listed above and perhaps the most obvious, has been the general trend of banks pulling out of the market. This has been particularly frustrating for small business owners as they have zero control over this. We estimate that literally 70% of the banks in the nation pulled out of the market. Now we are seeing banks and lenders starting to come back, al be it slowly, and are interested again in looking at loan requests.

The issues here are complex and vary from one bank to the next. For example many banks are not healthy enough to lend per the FDIC regulations. Some have just been conservative and wanted to wait it out.

As far as underwriting parameters we are seeing a general loosening. For example, declining gross sales, which has been one of the main reasons for borrower decline is less of an issue if the year to date numbers show stabilizations. Declining property values have also been a major problem and we are seeing values stabilize in some asset classes (like apartments) and in some areas like Texas.

Most of the issues are intertwined and connected here. It’s a classic catch 22. However as the general economy continues to improve many of the existing issues will likely take care of themselves and SBA financing will return to more healthy levels.

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