Archive for March, 2009

New SBA incentives, are they for real? Part 4 – Motivated to save, not borrow

March 31st, 2009

pigToday I visited the SBA website again, but headed directly to the section providing information from our local Small Business Development Center in Denver. After taking a closer look at the types of loans offered by the SBA, I’m convinced that what I am looking for is a MicroLoan.

The MicroLoan Program was developed to increase the availability of very small loans to prospective small business borrowers. Under this program, the SBA makes funds available to nonprofit intermediaries, who in turn make loans to eligible borrowers in amounts that range from under $100 to a maximum of $25,000. The average loan size is $10,000. Completed applications can usually be processed by the intermediary in less than one week.

The intermediary for our area is the Colorado Enterprise Fund

The mission of Colorado Enterprise Fund (CEF), according to their website, is to provide credit to small businesses that do not have access to loans from commercial sources. Through loans and services, we help entrepreneurs strengthen their businesses, stabilize and increase their incomes, create additional employment and contribute to the economic revitalization of their communities.

CEF lends to businesses anywhere in the State of Colorado and Loan funds may not be used for owner’s salaries, personal expenses, delinquent taxes and certain other purposes.

That’s fine with me since I only desire to update equipment and software.

Loans range from $1k to $250k, rates range from 9% to 14% per year, terms are 7 years, and come with three fees which have NOT been waived by the Recovery Act:

- Loan application fee of $25 per owner or cosigner
- Commitment fee between 1.5% to 5%
- $100 per year technical assistance fee and other fees for document recording, etc.

The Colorado Enterprise Fund states that while good credit is important, CEF recognizes that applicants may have had credit issues in the past. We attempt to be more flexible than a traditional lender when reviewing your credit report.

Good news! Since we have no other delinquencies and the drop in our credit score is clearly related to the short sale of our home in Florida, I can provide a letter of hardship which would hopefully suffice.

I download a loan application and get to work. I am at page 4, under “credit information: when I hit the following question:

Are you currently slow pay in your mortgage and/or vehicle account?

Followed by:

If you presently are delinquent in your mortgage and/or vehicle account you DO NOT QUALIFY for a loan under our program’s guidelines. If you have proof that these accounts are current, please provide supporting information.

TIP! Read through the whole application BEFORE you begin filling it out :(

Next, I look into the 7(m) Micro Loan Program (although it feels like a stretch)

The Micro Loan program is for short-term loans up to $25,000. The average Colorado loan is approximately $11,000. Fees and eligibility requirement are similar to those found in the 7(a) program while terms are typically less than three years.

- 39% of these loans go to start-up businesses while the remaining are made to existing businesses with a demonstrated track record.
- 29% of loans made to service industry while the bulk are made to manufacturing, retail and other types of businesses.

I visit the intermediary lender for our area: Colorado Office of Economic Development

I find that these types of loans typically support real estate purchase and rural development (not me), but there is a link on their site for “business loans” which leads me to their recommended SBA Express Loan lender, Innovative Bank. Innovative bank offers another type of loan I had not heard of before called a SOHO Loan.

A SOHO Loan is a lending product developed by Innovative Bank to promote the Small Business Administration’s (SBA) Community Express program to provide financial assistance, capital access, technical and management assistance to the underserved segment of the small business community. SOHO stands for Small Office/Home Office and is geared to small to medium size businesses in all geographic areas of the United States. That sounds more like it!

A SOHO loan offers the potential qualified small business owner financing that ranges from $5,000 up to $50,000 (Community Express minimum loan amount is $25,000). All loans carry an 84-month term, no pre-payment penalty, minimal paperwork, Innovative Bank paid technical assistance, as needed, and quick turnaround time. Variable interest rates are tied to the new Prime Rate published in the Wall Street Journal plus the Innovative Bank spread of 4.75% or 3.75%, depending on the amount of the loan, i.e.,

Loan amount: $10,000
Approximate monthly payment: $156
Variable rate: P + 4.75%
Terms: 84 Months
Packaging fee: $575
SBA Fee: (WAIVED BY RECOVERY ACT) $180

But here’s the catch. To apply, you must go through your local TAP (Technology Advisory Program) representative and guess who that is? The Colorado Enterprise Fund, the program that does not allow you to apply if you have mortgage issues!

Why do you have to work through a TAP representative? According to Innovative’s website “Because the government wants to assist you with start-up business services such as applying for business licenses, permits, etc. and/or where to apply for business services such as loans or checking services. Your TAP will assist you with technical needs, such as accounting, marketing, e-commerce, business planning, computer assistance, etc. and arrange for you to attend workshops. The TAP will also assess your need for other banking products (checking, merchant account, etc.). This service is free of charge.

Groan…

So, here’s where I’m at. It was hard to get psyched about taking out a business loan in the first place, so it’s hard to say I am disappointed. We are cutting back and trying to reduce debt like most everyone in the Country, so borrowing felt completely counterintuitive at first thought.

I have to admit though, all of the publicity behind the “Small Business Incentives”(incentive: an expectation that induces action or motivates effort) did inspire hope in me that maybe this was the time to move forward and invest in my company. That our government was taking into consideration the hard economics times and was stretching out their hand to help. In reality, if you are attempting to finance the purchase of real estate or launch a new business in a low income or rural area…maybe. If you are looking for assistance in troubling economic times…probably not.

What is SAD to me, is I know that we are not alone. When the value of your home drops $250,000 obviously the best strategy is to stay put until the value climbs again, and God alone knows when that will happen. But what if you can’t stay put? What if you have to relocate for a job, like us? The city where our home is located in Florida had the second highest foreclosure rate in the nation in February, with one out of every 65 housing units receiving a foreclosure notice. Two-thirds of the homes sold in the county so far this year have been foreclosed properties. Nope, we are not alone. With so many people backed into a corner, with so many credit scores plummeting, I’m not sure how small business will thrive, but in my case it will NOT be through a government assisted loan. I won’t pursue it any further. The incentive to grow is there, but the old saying ‘where there is a will there is a way”certainly doesn’t apply to SBA loans or the Recovery Act.

What makes me HAPPY is that my decision to not pursue an SBA loan means that I will not be taking on any more debt. I will continue to cut back, scrape and save and when the time is right I will upgrade my equipment using cash.

What makes me CONFUSED is how this incentive is supposed to spark the economy if the majority of small business owners come to the same conclusion. If anything, the new SBA incentives have motivated me to save, not borrow.

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New SBA incentives, are they for real? Part 3 – Well, that didn’t work!

March 30th, 2009

Disclaimer:  I have been banking with Wachovia for nearly 2 years and am a huge fan. Their level of customer service is beyond anything I’ve experienced with any other bank…period. Please do not construe anything in the following post as a negative comment towards the bank in general.

To briefly recap Part 1 &Part 2 of this series about the new SBA Recovery Act incentives”. Our credit score took a large hit when my husband lost his job in June, 2006, and we had to make a sudden move to Colorado, putting our home in Florida up for sale just as the real estate market crashed. The value of our home has plummeted from $490,000 to approximately $245,000 at present. After attempting to sell or rent our home for nearly 2 years without success, and without the resources necessary to continue carrying a home in Florida AND in Colorado, we made the difficult decision to apply for a short sale of our Florida home. If you are not familiar with the short sale process, you basically have to stop paying for your home before a short sale will even be considered. We have been approved for a short sale, but in the meantime our credit score has dropped from the high 700 to the mid 500’s.

As every penny we have earned in nearly 3 years has been poured into maintaining two homes, I obviously have not had the funds necessary to upgrade or grow my business. Upgrades are becoming crucial at this point, but a conventional loan is pretty much out of the picture. That is why I hoping that incentives offered through the SBA as part of the Recovery Act can help provide me with the funds necessary to upgrade.

So, with documents in hand I headed to Wachovia first, as that is where I hold my personal and business accounts. I called ahead to make an appointment, explaining that I was looking for more information regarding an SBA loan.

TIP #1

The SBA’s website has a FAQ regarding the Recovery Act wherein they mention that you should “specifically ask about the Recovery Act and SBA loans” when approaching a lender. I didn’t realize at the time how important that advice was. My meeting at Wachovia was scheduled with a “financial specialist” who had no immediate knowledge of SBA loans and could not give me any specific information. So, let them know ahead of time!

My appointment at Wachovia did not provide me with any new information, but Wachovia’s local expert, their “Assistant Vice President Relationship Manager Small Business Banking”, did return my call before the day was through. The two options he offered me were:

1. An equity line secured by our home in Colorado; or

2. A traditional unsecured loan

It was pretty obvious that the information regarding our credit situation was not passed on to him, so I let him know about the short sale and also made it clear that I was not interested in an equity line. He said that he would be speaking with someone from the SBA tomorrow and would return my call the next day.

True to his word, the Wachovia representative called me back in the morning. He told me that SBA loans were only being offered to individuals purchasing property at this time. They were not providing loans for equipment upgrade.

TIP #2

The information regarding the granting of loans was presented in such a way that at first I believed he was talking about SBA policy. That confused me because I thought the SBA website had mentioned loans for equipment upgrades. After asking the representative specifically if this was SBA policy or Wachovia’s policy, the representative stated that it was the bank’s policy. If I had not asked that specific question I probably would not have continued my pursuit of an SBA loan. So make sure you ask! Or better yet, do what I will be doing next…

Although it may still be wise to check with your local bank first (I’m a novice at this) my next step will be to contact our Small Business District Office in Denver. Hopefully they can provide me with direction as to which lender’s I should approach given my business needs and save me some time.

Stay tuned!

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New SBA incentives, are they for real? Part 2 – Do I even qualify?

March 27th, 2009

Incentive: : a positive motivational influence

How is the Recovery Act supposed to help small business owners like me?
The American Recovery and Reinvestment Act of 2009, signed into law by President Obama on February 17, 2009, received applause from the Small Business Administration.

According to the acting SBA Administrator, Darryl K. Hairston, “The tax incentives and credit stimulus elements of the Recovery Act will truly help small business owners affected by the credit crunch, and will provide financing opportunities to help them create new jobs in their communities”.

The two key provisions in the Act that are geared towards helping small business owners are:

  • Temporarily raising guarantees to up to 90 percent on SBA’s 7(a) loan program, through calendar year 2009, or until the funds are exhausted. This increase in guarantee levels will help provide banks with the greater confidence they need to extend credit during the current recession, will mean more capital available to small business owners around the country.
  • Temporarily eliminate fees for borrowers on SBA 7(a) loans and for both borrowers and lenders on 504 Certified Development Company loans, through calendar year 2009, or until the funds are exhausted. This will mean more capital available to small businesses at a lower cost. The fee elimination is retroactive to February 17, the day the Recovery Act was signed. SBA is developing a mechanism for refunding fees paid on loans since then.

Is my business eligible for an SBA Loan?
According to the SBA, the kind of businesses typically able to get SBA-backed loans Typical 7(a) borrowers are entrepreneurs looking to start, expand or acquire a small business. In many cases, the applicant may have a strong business idea, management ability, and sound financial projections, but may have a shortfall in collateral to secure a loan or equity to put into the business.

Expand, yes I want to expand…

In order to qualify for a SBA 7(a) loan, borrowers must be unable to secure conventional commercial financing on reasonable terms and be a  “small business” as defined by SBA size standards. In 2008, of the $18 billion in SBA backed loans, 35% went to start-up businesses, nearly 32% ($5.7 billion) went to minority owned businesses, and nearly 23% went to women owned businesses.

That would most definitely be me…

SBA-backed loans are three to five times more likely to be made to minority and women owned businesses than conventional small business loans made by banks, according to a recent study by the Urban Institute.

Yippee that’s me!  Woman!

But will you still lend to me even if the crash of the housing market directly impacted by FICO credit score?
According to the SBA, 7(a) loans are meant to assist borrowers who are unable to obtain financing on the same terms through normal lending channels. Loan proceeds can be used for most sound business purposes including working capital, machinery and equipment, furniture and fixtures, land and building (including purchase, renovation and new construction), leasehold improvements, and debt refinancing (under special conditions).

Again this is me. No way to get conventional financing on reasonable terms and I need to purchase equipment.

So let’s try it…
According to the SBA, the route to take when applying for a 7(a) loan is to apply directly with your lending institutions, including banks, credit unions, and Small Business Lending Companies.

The SBA states that they work with thousands of small and large lenders nationwide. Lenders evaluate loan applications under their lending standards and decide whether to:

a) Make the loan through conventional financing — without a SBA guarantee –because the borrower meets their conventional credit standards;

b) Make the loan with a SBA guarantee if the borrower does not meet conventional standards and is eligible for SBA programs; or

c) Decline to make the loan.

I’ve put together a package that consists of income tax statements for 2005-2008, income and expenses for the first quarter of 2009, a request for loan/business plan, and letter of explanation regarding the short sale of our home.

First stop my local bank where I have my business checking, personal checking and savings accounts… Wachovia.

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New SBA loan incentives, are they for real? Follow me as I apply.

March 25th, 2009

Part 1 – Dealing with the rubble of the housing market disaster

In June 2006 my husband lost his job of 7 ½ years at a hospital in Florida after the hospital sold to another organization. My husband’s services were contracted for through his employer, and the statement was made by the hospital’s new administration after the purchase that they did not use contract services, but preferred to work from within.

My husband met with his company’s CFO and asked if he should be out looking for another job or whether they would place him in a new facility should the contract be cancelled. He was told not to worry, that the contract would not be cancelled, but even if it was, the company would take care of our family. Over the months the tensions seemed to mount, so my husband approached his CFO two more times, both times receiving reassurance that he had nothing to worry about. My husband is an extremely dedicated employee and hard worker, so he set his mind to staying focused and doing the best job he could possibly do.

But, the contract WAS cancelled and his company did NOT take care of us. They simply informed us that they had no where else to place him and provided our family with a 6-week severance package. My husband works in a specialized field for which jobs are not easily found. The standard severance package for his position, combined with years of service, would normally be between 3 to 6 months. He hit the pavement running and interviewed for positions in Seattle, Delaware and two locations in Colorado before accepting a job in Colorado Springs.

By the time my husband was offered his new job, we had only two weeks to pack, put our house in Florida up for sale, and move all the way across the country - away from our children, grandchildren, family, church, and friends of 15 years.

After settling into Colorado, we quickly found a rental home figuring we would rent for a couple of months until our house sold in Florida. Of course, the housing market crashed in Florida shortly afterwards and our city in particular. It currently has one of the highest foreclosure rates in the country and it will be years before the excess inventory constructed during the “building boom” has been sold off.

We watched the value of our home plummet from approximately $490,000 to $245,000 at present, if we are lucky. From August 2006 until May 2007 we had fewer than 10 potential buyers come through our house and no one made an offer. In the meantime, we were paying for our rental home and all the expenses associated with both homes in Colorado and Florida.

In the spring of 2007 we decided to take the Florida house off the market and try to rent it. The house rented in late June 2007, but the tenants were unable to make timely and/or regular payments and abandoned the house in February 2008, leaving a great deal of damage.

As all of this was happening we were approached by our landlord in Colorado and told that due to the discovery of a terminal illness, he was selling all of his rental properties. We were given the first opportunity to buy our rental house – the alternative being we had to move at the end of our lease. Though stretched to our limit financially, up to this point we had been able to keep all of our bills current and had good credit.  To move to another rental home would have required new deposits, etc., that we simply didn’t have. We started to inquire about a home loan and found that we qualified for a low interest traditional loan. Our Landlord made it possible for us to purchase our home in Colorado Springs with no money down and at a monthly rate that was just a little more than our rent.

After cleaning and repairing our Florida home we began trying to rent or sell the property again… nothing. (BTW, it cost nearly $500 every 10 days to run an ad in the local paper.)   By June 2008 we had exhausted all savings and other means to maintain two households in two separate states. Nearly two years after moving to Colorado Springs we had to make the very difficult decision to walk through the steps necessary to apply for a short sale.

Now, 9 months later, we have been approved for a short sale, but one opportunity has already fallen-through as a result of the amount of time it has taken for the mortgage holder to perform its necessary due-diligence. I could easily get side-tracked writing about the “non-motivation” of our bank since receiving its bailout money, but that is for another time.

The bottom line is that the value of our home is not the only thing that has plummeted. Now that we are in the middle of a short-sale, our credit score has also plummeted from the high 700’s to the low 500’s. We really had no choice in the end so it is useless to cry over something that cannot be changed. Instead I have to adapt.

I am now a female, small business owner with a bad credit score.  In order to grow my business (or stay IN business) I need to upgrade my software and computer but do not have the funds.  I am hoping to take advantage of new incentives offered by the Small Business Administration to businesses that have had their credit injured due to the recession.

Follow me as I walk through the steps of applying for a small SBA loan.  I’m curious as to whether the incentives are real or just talk.

In Part 2, I will give a recap of the current incentives and explain why I feel my buiness should qualify.

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Related info:  As the economy has declined it has become more important for me as a small business owner to make getting paid as easy as possible!  I have found cardpay.net to be an excellent, trustworthy merchant account provider.  I also received a free credit card machine as part of the package.  This really helped with start-up costs.

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