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!