Small-business lenders in Indiana are supporting a proposal announced by President Obama that would increase the size of government-backed loans.
Under the plan announced Wednesday, loan amounts made through the U.S. Small Business Administration’s flagship 504 and 7(a) programs would increase to $5 million. Current maximums are $4 million for 504 loans and $2 million for 7(a) lending.
The initiative would be funded by the Troubled Asset Relief Program and would need to be approved by federal lawmakers.
“I think that increasing the caps on SBA lending is absolutely the way to go,” said Joe DeHaven, president and CEO of the Indiana Bankers Association. “It’s the correct way to spur small-business loans.”
The credit crunch has severely slowed lending activity, although most bankers contend that capital remains available to clients with a solid credit history. Still, the number of SBA-backed loans in Indiana dropped nearly 30 percent in fiscal 2009 from the previous year.
For the fiscal year ended Sept. 30, 1,035 loans totaling $266.8 million were made through the two SBA programs. That compares with 1,460 loans totaling $307 million in the previous fiscal year.
“We’re still cautious, but I think we are lending to credit-worthy borrowers,” said Scott Burns, vice president of SBA lending at the Indianapolis office of Pittsburgh-based PNC Financial Services Inc. “And you’ll see [lending] starting to step up over the next year.”
Burns thinks Indiana’s large manufacturing base could benefit most from the proposed increase, because a mid-size factory can’t purchase a lot of equipment with a $2 million loan.
The Washington, D.C.-based Independent Community Bankers of America issued a statement supporting the proposal, as did the National Association of Development Companies.
NADCO is the trade association for the nation’s certified development companies that make 504 loans. Jean Wojtowicz, director of the Indiana Statewide Certified Development Corp. in Indianapolis, is chairwoman of Virginia-based NADCO.
“Raising the ceiling on SBA 504 loans to $5 million is a big step toward bringing more job-creation money to Main Street,” Wojtowicz said.
504 loans typically are used to purchase land, buildings and equipment.
The SBA currently guarantees as much as 90 percent of loans it backs through approved financial institutions. The guarantee provides an incentive for banks to lend to small businesses that are more at risk of defaulting.
Thursday, October 29, 2009
Monday, October 26, 2009
Restaurant Financing 2009 Update Re-cap
2009 Restaurant Financing Update
Roughly 50,000 SBA loans since 2000
$11 Billion 7(a) and 504
1 out of 9 SBA Loans finance restaurants
15% failure rate
12% of all Charge-offs since 2000
1 Million Restaurants in United States
(1 Restaurant for every 320 Americans)
Nathaniel Booker, President of First Innovative Financial Group, Inc. explains, "Quite often many of the deals that we have done are in strip centers, sometimes in malls. This is why it's very critical underwrite the business.
When you underwrite the business, you're underwriting the owner, management is very critical.
You want someone who has experience operating a restaurant. If they are opening up a second or third location you mitigate your risk of loss. When you're opening up a new location you need projections that are listed and supportable. Many of them don't do what I consider very critical analysis regard to table turn.
Chris Hurn, President & CEO of Mercantile Capital Corporation explains, "I want to see that they know their space well. If they're a sit down or fast casual, knowing what else is around that particular location is helpful.
"I'm a big believer that you can tell a lot about a company with the kind of measures restaurants have in place to try and make it such that the employee's enjoy what they do and then actually show it to the customers as well.
"Is the experience delivered consistently every single time? In the case of restaurants, do the waiters or waitresses check their attitudes at the door and they put on a performance when they're there. These are all non-financial, intangible items, but it's important to know that. It helps a lender contemplate doing a particular loan to know some of these things because it gives you a better feel for what this concept is going to be like and whether they should actually do it or not.
Roughly 50,000 SBA loans since 2000
$11 Billion 7(a) and 504
1 out of 9 SBA Loans finance restaurants
15% failure rate
12% of all Charge-offs since 2000
1 Million Restaurants in United States
(1 Restaurant for every 320 Americans)
Nathaniel Booker, President of First Innovative Financial Group, Inc. explains, "Quite often many of the deals that we have done are in strip centers, sometimes in malls. This is why it's very critical underwrite the business.
When you underwrite the business, you're underwriting the owner, management is very critical.
You want someone who has experience operating a restaurant. If they are opening up a second or third location you mitigate your risk of loss. When you're opening up a new location you need projections that are listed and supportable. Many of them don't do what I consider very critical analysis regard to table turn.
Chris Hurn, President & CEO of Mercantile Capital Corporation explains, "I want to see that they know their space well. If they're a sit down or fast casual, knowing what else is around that particular location is helpful.
"I'm a big believer that you can tell a lot about a company with the kind of measures restaurants have in place to try and make it such that the employee's enjoy what they do and then actually show it to the customers as well.
"Is the experience delivered consistently every single time? In the case of restaurants, do the waiters or waitresses check their attitudes at the door and they put on a performance when they're there. These are all non-financial, intangible items, but it's important to know that. It helps a lender contemplate doing a particular loan to know some of these things because it gives you a better feel for what this concept is going to be like and whether they should actually do it or not.
Friday, October 23, 2009
Monday, October 19, 2009
Learn From Your Mistakes
If we want business success, we have to look clearly at our mistakes--and stop repeating them. We need to work with our team, not against them, to do this. Too often business owners tell me, “It was just a small mistake.” But, there are no small mistakes. Why?
• A small mistake can have big consequences.
• Repeating small mistakes can lose customers, kill a business or cost an employee his job.
In fact, every mistake has at least six different sizes:
1. The size of the mistake itself, which is usually small.
2. The size of the consequences if the mistake is not found and corrected, which can be huge.
3. The size of the time and cost it will take to fix the mistake.
4. The size of the causes of the mistake.
5. The size of the effort to prevent the mistake from happening again.
6. The size of the benefits from ensuring the mistake doesn’t happen again.
• A small mistake can have big consequences.
• Repeating small mistakes can lose customers, kill a business or cost an employee his job.
In fact, every mistake has at least six different sizes:
1. The size of the mistake itself, which is usually small.
2. The size of the consequences if the mistake is not found and corrected, which can be huge.
3. The size of the time and cost it will take to fix the mistake.
4. The size of the causes of the mistake.
5. The size of the effort to prevent the mistake from happening again.
6. The size of the benefits from ensuring the mistake doesn’t happen again.
Friday, October 16, 2009
Thursday, October 15, 2009
New SBA Changes
The U.S. Small Business Administration dramatically altered its requirements regarding goodwill financing. The current rules, which were implemented on March 1, 2009, restricted lenders' ability to finance goodwill under the 7a program to the lesser of 50% of the purchase price or $250,000, whichever is less.
The new rules released today significantly modify the existing rules. In summary, the new rules provide that if the purchase price of a business includes intangible assets (including but not limited to goodwill, client/customer lists, patents, copyrights, trademarks, and agreements not to compete) in excess of $500,000, the borrower must provide an equity injection of at least 25% of the purchase price of the business to process the loan under PLP delegated authority. The new regulations further provide that the borrower's equity can be any combination of a direct contribution from the borrower and a seller note that is on full standby for minimum of two years. The new SOP provides that exceptions to this new policy may still be submitted under CLP or GP processing.
New requirements effective as of 10/1/09
The new rules released today significantly modify the existing rules. In summary, the new rules provide that if the purchase price of a business includes intangible assets (including but not limited to goodwill, client/customer lists, patents, copyrights, trademarks, and agreements not to compete) in excess of $500,000, the borrower must provide an equity injection of at least 25% of the purchase price of the business to process the loan under PLP delegated authority. The new regulations further provide that the borrower's equity can be any combination of a direct contribution from the borrower and a seller note that is on full standby for minimum of two years. The new SOP provides that exceptions to this new policy may still be submitted under CLP or GP processing.
New requirements effective as of 10/1/09
Wednesday, October 14, 2009
Business Planning for the Rest of Us
So let's say you don't need a business plan. You say your understanding has always been that business plans are for starting companies. Or maybe because you're not looking to take your existing company to market, borrow money from a bank, sell it or get new investment, you don’t need a plan. Those are myths, and they don’t really argue against business planning. But let's suspend disbelief for a bit and settle for this question: If I don't need a business plan, do I not want to plan my business?
Here are some reasons to have a plan, regardless of whether or not you need to show one to some outsider:
1. Long-term goals: You want to manage, develop, review and implement long-term business strategy.
2. Business management: You need to manage teams, tasks and accountability. The problem of who does what, when and how much it costs comes up again and again. Responsibility has to be defined. All of this needs to be written down. You need to know what's going to happen. You need to coordinate between people, vendors, events and so on.
3. Cash-flow management: You need to manage money. You have to watch sales to be able to manage expenses and, more important, cash flow. You don't need any surprises.
4. Staying strong: You want to keep your business healthy. That means watching for new opportunities, threats and new developments in your market. You don't want to stagnate.
All of these goals are related to business planning. None of them, however, relates directly to the classic business plan document. They don't involve validating your market or showing off your management team. Nor do they involve valuing your company for investment or proving your company to bankers.
They are about managing the company, not explaining it.
My suggestion: Don't throw out the baby with the bathwater. Do your planning, whether or not you develop a full, formal business plan. Do just what's necessary, not what the formal business plan would involve.
But what is it, then? Where is it, how do you do it, how do you share it? Here are my recommendations:
• Assume the plan will live on your computer. Don't worry about printing it out.
• If you're more than one person in your business, get the others involved. If you're a lot of people, then get the important managers involved. Share the planning process. Do a SWOT (strengths, weaknesses, opportunities, threats) analysis. Set up a schedule for review meetings for comparing plan vs. actual results and making course correction.
• Define your strategy in simple bullet points, perhaps pictures. Identify what's special and different about your business--a focused target market, and what you're offering to solve somebody's problems. Include the SWOT. Don't worry about format or tools or software; do whatever works best for you.
• Set up a list of dates and deadlines and decide who does what. Determine what is supposed to happen to make that strategy happen.
• Run some basic numbers: sales forecast and expense budget.
You don't have to stop life, even temporarily. Don't wait for the big plan to be done. Get going. Put your plan together one piece at a time, on your own schedule, and keep it somewhere easily accessible. Before you know it, you'll be planning to manage your business.
Here are some reasons to have a plan, regardless of whether or not you need to show one to some outsider:
1. Long-term goals: You want to manage, develop, review and implement long-term business strategy.
2. Business management: You need to manage teams, tasks and accountability. The problem of who does what, when and how much it costs comes up again and again. Responsibility has to be defined. All of this needs to be written down. You need to know what's going to happen. You need to coordinate between people, vendors, events and so on.
3. Cash-flow management: You need to manage money. You have to watch sales to be able to manage expenses and, more important, cash flow. You don't need any surprises.
4. Staying strong: You want to keep your business healthy. That means watching for new opportunities, threats and new developments in your market. You don't want to stagnate.
All of these goals are related to business planning. None of them, however, relates directly to the classic business plan document. They don't involve validating your market or showing off your management team. Nor do they involve valuing your company for investment or proving your company to bankers.
They are about managing the company, not explaining it.
My suggestion: Don't throw out the baby with the bathwater. Do your planning, whether or not you develop a full, formal business plan. Do just what's necessary, not what the formal business plan would involve.
But what is it, then? Where is it, how do you do it, how do you share it? Here are my recommendations:
• Assume the plan will live on your computer. Don't worry about printing it out.
• If you're more than one person in your business, get the others involved. If you're a lot of people, then get the important managers involved. Share the planning process. Do a SWOT (strengths, weaknesses, opportunities, threats) analysis. Set up a schedule for review meetings for comparing plan vs. actual results and making course correction.
• Define your strategy in simple bullet points, perhaps pictures. Identify what's special and different about your business--a focused target market, and what you're offering to solve somebody's problems. Include the SWOT. Don't worry about format or tools or software; do whatever works best for you.
• Set up a list of dates and deadlines and decide who does what. Determine what is supposed to happen to make that strategy happen.
• Run some basic numbers: sales forecast and expense budget.
You don't have to stop life, even temporarily. Don't wait for the big plan to be done. Get going. Put your plan together one piece at a time, on your own schedule, and keep it somewhere easily accessible. Before you know it, you'll be planning to manage your business.
Tuesday, October 13, 2009
Fever Staying in Indianapolis
Indiana's only WNBA franchise is staying put. Despite concerns about the future of the Indiana Fever, owner Herb Simon and other team officials say they "look forward to another great season in 2010 and for many years to come." The announcement is in a letter to fans posted on the team's Web site.
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