Monday, 07 December 2009 11:01
Small business Entrepreneurs are experiencing an ever increasing problem of being able to secure SBA guaranteed loans. According to the Los Angeles Business Journal, banks providing SBA guaranteed loans has come to a screeching halt in 2009 with little expectation that they will become more active.
This story is absolutely amazing, considering that our current administration pushed for and received funding to bail out the banks, while stating that banks were required to being lending again. Instead, the banks began acquiring other banks and paying off banking debts to shore up their balance sheets. In the meantime, small business took at back seat in a big way.
While the current administration loosened the restrictions on SBA loans and increased the guarantee, banks have not. These banks have shifted assets towards merging and acquiring other banks and reducing debt obligations until the current economic situations relax.
Many experienced Entrepreneurs are well aware that lending via SBA loans has always been extremely difficult do to the banks considering the size of the loan, the business plan, the credit history and collateral to guarantee the banks portion. In many cases, the bank would be more likely to lend to you without the SBA guarantee.
Let's say that you are borrowing $100,000 and the SBA will guarantee $85,000 of this loan. The bank is then looking at what assets you have that will secure that $15,000. Given that values of property have gone down, the bank may require you to provide an asset that has value in excess of the $15,000. The bank is also going to take into account your debt to income ratio based on the $100,000 loan making it even harder to get the bank to allow the SBA loan to go through.
In some cases, you may be able to qualify for the $15,000 loan from the bank, but the same bank would refuse to proceed with the $100,00 SBA loan.
Don't get to disappointed, that is just part of the experience of being an Entrepreneur. Even in the best times, SBA loans can be nearly impossible for Entrepreneurs to get. Successful Entrepreneurs hunkered down, boot-strapped where they could and reviewed the cost of their transaction to find how to improve profit.
If you have to raise capital, then consider doing a Private Offering to fund your business. You will need an attorney to help you with the filing, but before you do that, make sure you have your business plan in place.
You can find out more about raising capital in our business development section.
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