Are you curious about what the SBA Program will look like after President-elect Obama takes office? Click on the link below to see what Jeremy Quittner from BusinessWeek has to say. Better funding, stronger leadership and product overhauls don’t sound half-bad!

http://www.businessweek.com/magazine/content/08_72/s0812018619554.htm

If you’re a lender, you already know why the switch to LIBOR-based pricing is so critical to the success of SBA 7a lending. If you are a borrower, you might be confused about why your loan proposal went from Prime-based rate to LIBOR. Are you interested in learning more about the Prime vs. LIBOR debate? Click on the link below for more details.

http://www.colemanpublishing.com/public/CPR%20Report,%2012-2008.pdf

TALF…No it doesn’t stand for Takes A Lot of Flack….but it just might help to unclog the secondary market for SBA 7a loans. Click on the link below to learn more:

http://www.colemanpublishing.com/public/CPR%20Report,%2012-2008.pdf

Whether you are a democrat, republican or independent we all can agree that credit is tight for small business lending. As explained in Senator Kerry’s letter to Treasury Secretary Paulson, liquidity could be opened back up with the use of TARP (Troubled Assets Relief Program) funds. Senator Kerry explains that SBA lenders make loans, and then sells those loans into the secondary market. This helps banks to get their cash back and re-lend those funds to new clients. Unfortunately, SBA loans aren’t selling, which means that bank capital isn’t’ being replenished.

It’s disappointing that Senator Kerry isn’t specific about his ask. He fails to quantify for Mr. Paulson how much TARP money is needed to bail out the SBA; Additionally he doesn’t say much about the safety and return on those investments (which is a great selling point).

I do like Senator Kerry’s sense of urgency. He also correctly identifies the source of our Small Business liquidity crunch: the Secondary Market. The liquidity crisis is not about overly-conservative banks being stodgy. It’s about SBA lenders having enough cash to lend out.

Please take a read of the attached article and feel free to post with your comments or questions. And don’t worry, USFC is still lending money and open for business!

Tarp Funds for SBA

There is a great article with Steven Terhaar and Kenny Leonard in the latest MiBiz.

Unlike other lenders, Terhaar said USFC doesn’t shy away from complex deals even though they do require more attention and time to complete. According to Leonard, USFC considers itself a "boutique lender, an investment banker for small business." The company is able to offer businesses some unique financing options traditional lenders can’t offer or won’t even approach because of the volatile market.

You can read the whole thing "East Meets West" at MiBiz.com

It has been about a month since I officially started with United Structured Finance and it has been a great start. I have now moved into my permanent office and have several deals under my belt . With each day that passes I am getting more and more comfortable with the unique niche in the market that we serve. Since I began we have turned around a bankruptcy acquisition in 15 business days; done a business acquisition bridge loan to allow traditional financing to get in place; we have made several proposals for interim construction financing where a lead bank will take us out once construction is complete; we have taken several commitments over for banks whose capital position or underwriting criteria didn't allow them to fund; and we have done several 7a and 504 loans. In fact, through the 3rd quarter of 2008 we are the 9th largest SBA lender in dollars in the state!

The depth of knowledge and resources at our disposal make us a unique, creative, and fast small business lender. I look forward to working with my existing customers and contacts and developing new ones as we continue to grow throughout the region.

Back in May I offered some advice to individuals looking for a source of cash to inject into their new business. I came across this New York Times article that I thought you'd find interesting. The New York Times article, written by David S. Joachim discusses the pros and cons of utilizing 401(k) savings to fund your startup. I hope you enjoy it as much as I did.

Check out the New York Times Piece and leave us a comment about what you think back here.

Western Michgian Business Review features United Structured Finance Company's opening of a new office on the Western side of the state.

USFC hopes to appeal to borrowers that may have been denied credit in today's environment and are willing to shop around, said Kenny Leonard, a commercial lender who'll run the office.
USFC decided to move into the Kalamazoo-area market after connecting with Leonard. USFC was a client of Leonard's when he previously ran the local office of SBA-lender Michigan Certified Development Corp.

Check out the whole article

Ann Arbor company that specializes in coordinating U.S. Small Business Administration lending plans to open a Kalamazoo-area office next month.

check out the rest of the article on United Structured Finance Company's diversification mlive

United Structured Finance Co. (USFC) is proud to announce that it has become Michigan’s Fourth Largest (by dollar volume) Small-Business Lender through the first three quarters (ending 6/30/08) of the SBA fiscal year. Since its inception in May 2007 USFC has been committed to helping small businesses to grow and thrive here in Michigan and Midwest.

According to the August 18, 2008 Crain’s List United Bancorp (USFC’s parent) had six SBA loan approvals totaling $5,017,445 (Source: US Small Business Administration) in Michigan. We are pleased with our results and are glad that we are a part of Michigan’s turnaround: To date we have saved an estimated 100 jobs from leaving the State. We have also funded projects that have added over 50 new jobs in the marketplace.

It wasn’t long ago that small business owners could walk into a bank and obtain a loan for their small business without too much hassle. Many banks providing credit to these owners simply would run a credit bureau report on the business owner and then underwrite the loan much like a consumer loan. Many of these loans went “unsecured”, meaning, that the banks oftentimes had nothing to collect if the loan were to go into default.

Fast forward to 2008: both conventional and SBA lenders are retreating, making it much more difficult for small businesses to secure funding.

The facts are compelling. According to the Wall Street Journal and Biz Journals liquidity is drying up in the marketplace:

• 2008 is experiencing a 15% drop in SBA 7(a) loans, which will result in a billion dollar reduction in government loan program liquidity in the marketplace;
• On April 1, Bank of America discontinued the Business Credit Express program and began steering customers to other small-business products such as credit cards;
• Surveys released in May by the Federal Reserve found that half of US banks are tightening their loan standards on small business loans. Nearly 2/3 have raised rates;
• Many of the top 10 SBA lenders in the country (representing 60% of all SBA 7a loans) are retreating from making SBA loans;

Given the above it’s safe to say that small businesses are going to have trouble finding access to capital.

Is there a glimmer of hope? Perhaps…

Many economists feel that the retreat by larger banks is an opportunity for smaller community banks to enter into the SBA marketplace.

There is also a coinciding reduction of sale prices for businesses and real estate being bought and sold in the marketplace. Businesses being offered for sale these days (which are oftentimes financed by SBA and traditional loans) are being sold at or less than book value. Selling a business at or less than book value means that the purchase price is equal to or less than the value of the assets being acquired. Simply, we aren’t seeing good will, intangibles or non-competes included in purchase agreements any more.

OK, so what does this mean to me???

Do you remember what I said about tighter underwriting standards earlier? Taking premiums (such as intangible and good will) out of purchase agreements means that purchasers are only paying for the value of those (tangible) assets that you can touch, feel and obtain an appraisal for. This makes banks feel more secure in financing your transaction because they aren’t facing a collateral ‘airball’ (a situation where a bank loan is greater than the value of the collateral supporting the loan).

I propose that we begin to use this tough environment to our advantage. If you are looking to purchase a business, put in an offer at or less than the purchase price. Chances are, the seller knows about the tight credit market and he/she will be willing to work with you. Obviously, a purchase price that’s in line with the book value of the business makes it easier to get financing and also reduces your monthly loan payments.

Have a question or would you like to discuss this article? Call or email us any time!

Fifteen years ago I was sitting at the loan committee table as a credit analyst marveling at the “masterpiece” credit approval memorandum that I had created for one of my loan officers. The document was full of all the fancy ratios and analysis that all of my MBA counterparts wanted (or so I had thought).

The commercial loan manager leaned over to me and said, “Hey Mike, I know you like this deal a lot, don’t you? After all, you sure did spend a lot of time analyzing this credit. But tell me, what gets you excited about this one?”

I eagerly began to go through all of my hard work, showing him my cash flow, collateral, and financial ratio analysis. Almost immediately he began to shake his head and smile. “Thanks for the hard work, don’t worry, I like this deal, too. But I like it for a different reason. It’s not because of that, though.” he said as he pointed to my work. I like this deal because of this.” I looked down at what he was pointing at. He was pointing at the applicant’s 800+ credit score!

I quickly learned the following from this mentor: a prospect might have incredible corporate cash flows, ratios, and collateral; but if the project sponsor (business owner) doesn’t have good personal credit, you don’t have a deal.

Why? Think about it for a moment. With small business lending we deal with individual project sponsors and their willingness to pay us back — not CFOs and nameless shareholders. Business owners with better personal credit tend to do a better job paying off their business obligations as compared to those who have worse credit.

One of the biggest myths about small business lending is that personal credit bureaus don’t matter. “What does my personal credit matter?” we oftentimes hear. “My business is profitable! We can cash flow this deal!” Yes…but are you willing to make your loan payments?

In just about any credit environment, poor personal credit is the number one knockout factor that lenders are not willing to look past. Why? Because it says a lot about the person’s character. If a business owner is willing to take care of his or her personal obligations, regardless of what the economy or business is doing, it says a lot about that person.

In fact, good personal credit is the number-one mitigating factor that allows lenders to get comfortable with just about any deal that might have deficiencies in the borrower’s repayment capacity, collateral, capital, or market conditions.

What you can do:

• If you don’t know your personal credit score, get a free credit report by going to any of the following credit reporting websites:
• http://www.transunion.com/
• http://www.experian.com/
• http://www.equifax.com/home/
• Http://annualcreditreport.com
• Look for the following on your report:
• Is your score less than 680? If so, look for derogatory comments. The bureaus will list why your score is less than perfect.
• Look for any public records, liens, and other comments.
• Look for any collection accounts that are tied to your name
• Work diligently to get the derogatory items removed from your report. Even if it’s a medical claim, you are best served to get all outstanding items paid off.
• Lingering disputes from creditors can kill your credit score. Tackle each dispute head-on and resolve all of them.
• 
  

If you need help, try the following site: The Credit Law Group www.creditlawgroup.com

Questions, comments, or concerns? Write us! We’d be happy to help. contact@unitedstructuredfinance.com.

Where to Find Money to Fund Your Company

Raising equity is one of the toughest tasks for any aspiring small business owner. Even with an SBA guaranty, banks still require small business owners to put some “skin” into the game by requiring them to come to the closing table with their own funds. This is commonly called an “equity injection”. The minimum equity injection required for borrowers is 10%. So on a $500,000 transaction, the small business owner has to come up with $50,000.

But who has $50,000 hanging around in their bank account? Even if you do have $50,000 in your money market, savings, or mutual funds account; it’s usually ear-marked for a rainy day, kids’ education, wedding, or some other major life event.

So where do our clients find their money? In no particular order here are a few sources:

• Gifts from Family and Friends — Can you look at them in the eye at the Thanksgiving dinner table if things don’t work out and you aren’t able to pay them back for some reason?
• Private Placement Memorandum — Very expensive and time consuming to put together. Expect to pay at least $10,000 in attorneys and CPA fees. Having shareholders also means you have to live with them as long as they still have ownership in your company.
• Borrow Against Your Retirement Account — Even if it’s your own retirement account, you are still obligated to repay the loan. Although this is a viable option, it increases your personal debt service, so banks will see this as a negative.
• Liquidate your Retirement Account — This is also possible, but you will be subject to IRS penalties and fees (especially if you are taking a distribution before you reach 59-½ years of age).
• Leverage your House — Typically we see this in the form of a home equity loan/second mortgage. This happens very frequently; but it puts your home at risk and increases your personal debt service.

So what’s an Honest Joe supposed to do? Are there any other sources of cash that won’t subject you to penalties, fines, taxes, or embarrassment around the family buffet?

There is an answer! Our friends at DRDA, PC, a CPA and Consulting firm headquartered in Houston, Texas, researched the issue of utilizing qualified retirement plans to fund a business. Douglas Dickey, CPA, developed the Business Owners Retirement Savings Account plan (BORSATM).

What is BORSA? It’s a tool that allows you to fund the purchase of a franchise, business start-up, or business property using your holdings in a 401(a) pension, profit sharing 401(k), 403(b), 475, or IRA rollover. Through the utilization of a BORSA, these purchases can be accomplished without distributions, taxes, penalties, or the use of loans.

In its simplest form, the BORSA plan allows your retirement plan to purchase shares in your new company. Your business basically becomes another investment in your retirement plan’s portfolio. It’s not a loan to the account holder (you) and it’s not a distribution either. Your retirement plan basically becomes another investment in your retirement portfolio. This solution saves you thousands of dollars in taxes and interest expense. Best of all, it provides cash to your business from the Plan and is not a loan (and therefore not an obligation) for you or your company.

For a nominal fee, DRDA PC can put a plan together for you so you can put your money to work for you. These plans have been approved by the IRS and Employee Retirement Income Security Act of 1974 (ERISA). Certain terms, conditions, and restrictions to apply, so make sure you call DRDA PC before you act.

For more information, I recommend you look at the following websites and documents:

• www.borsaplan.com
• www.drdacpa.com
• Business Owner’s Retirement Savings Account (BORSA) Overview [PDF]
• Retirement Plan Rollover Checklist [PDF]
• Working with Qualified Plan Rollovers and SBA Regulations: The Opportunity and Issues [PDF]

You can also contact Suzy Granger. She’s a great source of information on how to get started:

Suzy Granger
Sales & Marketing
DRDA, PC
suzy@drdacpa.com

Questions? Call us at (734) 214-2726. We’re happy to help!

- Mike

So, are you thinking about writing a business plan for your startup? Looking to impress your investors and potential bankers with pages and pages of fancy graphs, ratios and financial analysis? That’s all bankers and investors care about, right?

So, are you thinking about pulling the trigger to buy that $499 software program that puts it all together? It’s the cost of doing business, right?

Okay — I have to admit it — Steve Terhaar and I are also guilty as charged. When we embarked on starting our own finance company, we spent over $500 on the latest and greatest Business Plan Software program. It truly was amazing. All we had to do is plug in the numbers and it would pump out pages and pages of numbers and graphs. It wasn’t long before we realized that the business plan wasn’t our own. We were adapting to the software as opposed to the software acting as a tool to help us. We ditched the software after two weeks of trying.

Ironically, we see hundreds of business plans each year. The funny thing is, the plans that come from software programs all look the same! They have the same verbiage graphs, charts, etc. In reality, they have hundreds of pages of content — but none of these plans actually tell me anything about why I should get excited about their company! Most of these plans fail to tell explain how they plan to hit their sales figures.

When submitting your business plan, don’t give us all of your assumptions on your overhead costs. Those expenses are fairly easy for bankers and financiers to understand. Instead, focus on how you will hit your sales numbers! If you are a restaurant, please don’t give me reams of macro economic data on what percentage of your community’s disposable income is spent on restaurants. Please share with me your assumptions! As your finance person, I need to know:

• How many people do you expect to have for breakfast, lunch and dinner?
• What is the average ticket (tab) for each meal?
• Are the crowds any different from Monday – Thursday as we compare them to the weekend crowds?
• What is the breakdown between food and beverage sales? Are your margins different between the two categories?

This kind of information speaks to the heart of how the business owner is thinking and gives us what we need as we evaluate your business plan. We also want to know about you. What is your experience? How are they transferable to your new endeavor? Can you demonstrate to me that you’ve made good business decisions in the past?

So, you’re not good at math? Talk with a book keeper, seek the assistance of a CPA, find a niece who’s good at spreadsheets! They can help.

I’d take a well thought-out three page business plan over a 40-page plan 10 out of 10 times. If I know about the person who’s approaching me and can buy into his or her assumptions, I’m in! If I understand your assumptions, following the math (accounting) will easily follow.

Questions about what I’ve just written? Send me an email or call me!

Mike