Some great information about SBA loans at mlive.com

Mike Chatas, president of United Structured Finance Company, a division of United Bancorp, said the SBA's allowance of longer-term loans helps customers who need assistance reducing their monthly debt load. USFC recently completed a transaction with local gift catalog company Ideation that Chatas said illustrates a common use for SBA loans.

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Late last week I was feeling pretty good about myself. I had just figured out a way to make an existing client’s real estate refinance transaction eligible under the SBA 504 loan program. It wasn’t easy, because SBA 504 loans can’t be used for refis. I still was not certain whether the client was completely on board with moving forward with us, so I decided to give him only 80% of what he needed to know:

1. That there was a way to get it done;
2. That the solution would involve some transfer of ownership in his real estate holding company; and
3. The solution would require a tremendous “sell job” to the SBA, but I was confident that we could get it done.

The Problem
Despite a fairly detailed proposal, the client wanted more specific information on how we would make the deal eligible; however, at the same time, he wouldn’t commit to moving forward with us. This makes for a difficult situation for both the bank and client.

From the Client’s Perspective
He wanted the “financial blueprint” before making the commitment to move forward with us (in the form of a good faith deposit).
From the Bank’s Perspective: We don’t want our financing solutions to be commoditized by having clients share them with competing financial institutions. As far as we are concerned, the solution is the bank’s intellectual property until we get a commitment back from the client in the form of a signed proposal and a $6,000 good-faith deposit.

The Solution
The solution is simple but not easy. We will wait patiently until the client is willing to
commit to our proposal (as detailed above) before we move forward with the solution and securing approvals. The waiting game is tough, but well worth it.

The Benefits
The client and Bank benefit in this scenario:

Benefits to Client

Conviction: Clients will attempt to find other banks or SBA lenders to do what we say we can do. By the time they come back to us, they are convinced that we (the bank) are the experts and know what we are talking about.

Concierge Service: I love telling clients that we are the “Zingerman’s” of banking. Once we get a good-faith deposit, we will assign a loan coordinator, analyst and closer to get the project underway. They will be taken care of, and we promise to make the process easy!

Solution: Clients are oftentimes amazed that we were able to help them to get to the closing table when most other banks were still sitting and scratching their heads. Trust me, there is no better feeling than providing and delivering on the right solution each and every time. They appreciate it!


Benefits to Bank

Value: Each and every time we come up with a creative solution, we are perceived as a true provider of financial services and not simply a bank. Good-faith deposits demonstrate that we have a strong interest in protecting our intellectual property. This sets us apart from the competition.

Time Management: I’m always okay with clients wanting to “shop” my proposals around. That’s fine; but if they are going to shop my commitments (where I’ve engaged my analysts, coordinators, loan committee, or board members), it’s going to cost them, because we won’t refund the good-faith deposit. Good-faith deposits ensure that we spend our time on working on real deals with committed clients, and not clients who have commoditized our business.

Client Experience: Many clients are surprised when they see a good-faith deposit agreement attached to our proposals. That being said, we almost always receive accolades from our clients via phone calls, email s, and hand-written letters. Knowing that a client has given us $5,000 to $10,000 prior to receiving a commitment ,makes us work harder, smarter, and conscientiously. It’s simple human nature. The client took a gamble on us; now it’s up to us to perform!

Greetings colleagues!

So far we are three for three with our SBA approvals in delivering on significant payment and structure relief for our in-market clients. There are several characteristics about these three deals that are worth mentioning. The SBA looks even harder at bank refi’s as compared to expansion opportunities. The common threads between all of these deals include:

• Strong personal credit
• Sound management team
• Good prospects for positive revenue and profit growth
• Adequate cash flow coverage to service debt

You might notice that I mentioned nothing about collateral coverage. That’s because right now cash flow is King in the eyes of the SBA. Collateral coverage is by far a secondary (or even tertiary) consideration. In fact, every one of these deals had very high LTV yet we received approval from the SBA anyway.

A company can demonstrate its high potential for positive revenue and profit growth by providing the bank with their most recent financial statements. We are hearing that the SBA has been declining refi’s that cannot demonstrate an ability to service debt (based on the most recent financial statements). Therefore no amount of collateral can make up for an inability to service debt.

We’ve noticed that some of our clients had great 12/31/2008 numbers; but now have poor first quarter results. We will most likely ask these clients to hold off on their SBA submissions until they become more cash flow positive. Unlike conventional deals, we won’t have to demonstrate three years of debt service; but the most current financials are extremely important to the SBA. It helps them to understand that they have, ‘turned the corner’, so to speak.

We encourage you to call Kenny or me with any questions, comments, or concerns.

Have a great week!

One of the most helpful aspects of the SBA 7a loan program is its ability to allow banks to make loans that go well beyond established collateral guidelines. This makes it possible to restructure loans for our clients who might not have any other refinancing options.

While this is a great concept, I need to make it clear that when we (or any bank) lend beyond our established LTV guidelines, the SBA requires us to take additional collateral from any business owner having a 20% or greater stake in the company. The most common types of additional collateral (in order of typical availability) are: personal real estate; investment real estate, and marketable securities (that are not in a qualified plan such as a retirement savings account).

Our focus here will be on personal real estate. The SBA considers personal real estate to be ”available collateral” if there is 15% or more equity in the borrower’s home. If a borrower’s home is levered 90%, a second (or third) real estate mortgage on their residence is not required. However, if the borrower has more than 15% equity in their home and we are under-collateralized (per the bank’s credit guidelines), we are obliged to take a second (or third) mortgage on the borrower’s property.

While most business owners insist on keeping their personal assets separate from their business financing arrangements, it is important to remember:

• There is potential cash flow savings realized by refinancing a conventional loan with SBA financing.
• If you are working on a 10-year deal, you will often have the ability to prepay the loan at any time with no prepayment penalty. When the economy gets better and finances improve, you can take the opportunity to refinance with conventional loan terms.
• If the transaction is amortized for 15 years (or more), you only have to stay in the deal for 3 years without having to face the 5%, 3%, 1% prepayment penalty (during years 1 thru 3).
• You have reassurance that as long as the borrower makes their payments on time and abides by our boilerplate loan agreements, we can’t call the loan.
• Finally, as stakeholders in our communities, we — and many other community banks — are doing everything we can to offer as much payment relief (and additional funds) as possible. In this economy, survival is the name of the game, and our bank is doing everything in its power to keep our local economy running.

In any deal, asking for additional collateral is going to be one of our most difficult objections to overcome. What we are offering is a long-term commitment on behalf of the bank without requiring a long-term obligation from the client to stay in the loan.

We face these objections each and every day, and are committed to making SBA refinancing a win-win solution for everyone. Please feel free to contact Kenny or me with any questions, comments, or concerns.

Have a great week!

Mike Chatas named Michigan Certified Development Partner of 2009!

In 2008, United Bancorp worked with the MCDC on seven different loan projects in eight different counties statewide, totaling $10,992,948 in capital accessed. This important work is expected to impact 229 jobs in Michigan, a positive note in today’s economy.

“We continue to assist businesses statewide, providing them with the financing needed to achieve growth, and further contribute to Michigan’s economy, none of which would be possible without value partnerships with financial institutions such as United Structured Finance Company,” said Jane Sherzer, president of MCDC.

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OK. I’m really not that clever. I didn’t come up with the acronym; one of my colleagues did the hard work for me. She’s pretty clever, though, isn’t she? So now for the easy part….What is TARP anyway? And what won’t / will it do for you?

1. TARP won’t pay down your mortgage...but it will allow banks to make loans to you and your small business.
2. TARP isn’t free...banks are required to pay every penny of the funds back, plus 5 percent interest. In an environment where Fed Funds are 0% to ¼%, you could argue that TARP funds are not free at all.
3. [MYTH] TARP is used to bail out troubled banks...those banks receiving TARP funds actually have to go through a rigorous application process. Only those banks that meet the Treasury Department’s standards are offered TARP funds. TARP funds allow banks to continue making loans to businesses.

Are you ready now to get the real 4-1-1 on TARP? Click here for more information.

Kenny Leonard helped a heavy-truck manufacturer in the Kalamazoo area diversify into circuit boards, and he says his employer, United Structured Finance Co., can help other manufacturers branch out, as well.

Read the entire article here: http://www.mlive.com/business/west-michigan/index.ssf/2009/02/alternative_lending_exists_for.html