SBA Financing, Are they Really Closing?

by: Jeff Rauth

Perhaps you're facing a ballooning loan, found an excellent property to purchase, or need to refinance your existing loan in hopes of reducing your payment. Whatever your goals are, most people at the beginning of the loan process want to know "is this really going to get done? Am I wasting my time even contemplating this?"

We all read the papers and watch the media reports how bad it is in the banking sector. And no doubt it is bad. The commercial secondary market is dead for example. It will likely be repaired, but it will take years to get it rolling again. Most loans have to fit the "portfolio" box. Meaning the bank that funds the loan, will most likely hold onto the debt, and not sell it to Wall Street.

SBA Financing

So yes, it is bad out there for small businesses to get financing, however there are a few sectors that are still viable, i.e. that continue to close. One of those areas is SBA financing. In fact, most banks that do SBA Business Loans are pushing most of their borrowers into the SBA box.

The reason? The 90% guarantee that the government provides for banks. I.e. in case of borrower default the SBA will pay back 90% of the bank's losses. This is a huge incentive to SBA Lenders.

Of course SBA financing has been down as well. At approximately 45% in 2008 vs. 2007. 2009 has been down as well. This is due to a variety of issues, such as: many banks not wanting to lend, many others that simply cannot as they have their own problems and a major problem we see more of - business trends.

Virtually no bank in the nation will lend to a borrower that has sustained declining gross sales over the last few years. For example if your gross sales parallel the general economy you will likely not get a loan closed. Banks are looking for those businesses that were lucky enough or smart enough to figure out how to react to the economy and to continue to grow.

This alone kills probably 80% of the loan request we receive. We see many highly experienced entrepreneurs that want to increase cash flow by refinancing or get working capital to help marketing, but if they are not already in a strong position, they will likely not get their loan closed. This is often a painful and frustrating catch twenty-two for business owners.

Jeff Rauth is a Commercial Mortgage Broker and President of Commercial Finance Advisors, Inc. out of Birmingham, Michigan. He specializes in Commercial Real Estate Loans between $400,000 - $10,000,000. Offering unique loan programs such as Long Term Fixed Rate Loans for Owner-Users and Investors, SBA Loans and USDA B&I Loans, among many others. For more information call 248-885-8797 or visit http://www.cfa.commercial.com.

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