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Posts Tagged ‘Capital Access’

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Temporary SBA 504 Loan Program Provides Working Capital for Small Businesses

July 19th, 2012 ::

By Maria Valdez Haubrich

Are you looking for cash or working capital to grow your small business? Then you should know about a temporary Small Business Administration (SBA) program that could help. As part of the Small Business Jobs Act passed in 2010, the SBA started a temporary program enabling small businesses to refinance eligible fixed assets through its 504 loan program without having to expand their businesses. This temporary refinancing program will expire on September 27, 2012, so now is the time to see if it can help your business.

Here are some of the benefits of the temporary 504 program:

  • Eligible small businesses can get below-market pricing and long term, fully amortizing fixed rate loans.
  • You can finance up to 90 percent of the property’s current appraised value.
  • In some cases, you can “cash out” proceeds from the refinancing to pay eligible business expenses, including payroll, inventory and accounts payable.

Eligible applicants for the 504 refinancing program must:

  • Show that their loans are current
  • Have made all required payments in the last year with no payments more than 30 days past due.
  • Debt to be refinanced must have been incurred at least two years before the date of the loan application

The temporary program is structured like SBA’s traditional 504 loan program (although it’s separate from that program). Small business borrowers work with third-party lending institutions and SBA-approved Certified Development Companies (CDCs) to get financing. The loan is typically made up of three parts:

  • A loan (or first mortgage) secured with a senior lien from a private-sector lender covering up to 50 percent of the project cost,
  • A second mortgage secured with a junior lien from an SBA-approved CDC covering up to 40 percent of the cost, and
  • A contribution of at least 10 percent equity from the small business owner.

For more details about the temporary 504 loan program, visit the SBA website and the 504 FAQs page.

Image by Flickr user vxla (Creative Commons)

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Posted in Capital Access, Raising Capital, Small Business, small business, Uncategorized | 3 Comments »

Bills Would Make It Easier for Credit Unions to Lend to Small Businesses

July 17th, 2012 ::

By Karen Axelton

Small business financing could get easier to find if two pieces of pending legislation pass. Recently introduced by Kurt Schrader (D-Ore.) and Steve Chabot (R-Ohio), the Credit Union Small Business Lending Act (H.R. 4191) would make it easier for credit unions to participate in Small Business Administration (SBA) loan programs.

Another pending bill, H.R. 1418, would raise the cap on how much credit unions can lend to businesses. Currently, credit unions can lend a maximum of 12.5 percent of their assets to member businesses. The bill would raise that percentage to 27.5 percent, significantly expanding credit unions’ ability to make small business loans.

More and more small businesses have been turning to credit unions in the aftermath of the recession, Small Business Trends reports. It’s easy to see why: Over the past year, credit unions have steadily increased the percentage of small business loans they approve, from 51.2 percent in May 2011 to 57.6 percent in May 2012, according to the Biz2Credit Small Business Lending Index. In contrast, the majority of small business loan applications to banks are rejected.

“Allowing credit unions to do more to help small businesses is an important step toward helping our nation recover from the current economic downturn,” says Robert Marquette, at-large director for the National Association of Federal Credit Unions (NAFCU), a national organization that focuses on federal issues affecting credit unions.

The average credit union small business loan is for $185,000—a small enough amount that loans of this size are often difficult to obtain from banks. Testifying before Congress about the need to pass both bills, Marquette told legislators that since the end of 2007, applications to credit unions for small business loans have grown from $87 million to $259 million in 2011.

According to Rohit Arora, CEO of Biz2Credit, there are several key reasons credit unions are increasingly becoming a funding source for entrepreneurs. Credit unions are typically more involved in the local business community than bigger banks, generally have more flexible lending requirements, can make lending decisions more quickly and are less reliant on automated scoring. What’s more, many credit unions even offer better financing rates than bigger banks.

Have you used credit unions to finance your small business?

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Posted in Capital Access, Raising Capital, Small Business, small business, Uncategorized | 3 Comments »

More Small Business Owners Plan to Seek Bank Loans

July 10th, 2012 ::

By Karen Axelton

Where are small business owners turning for financing these days? If you think entrepreneurs have given up on obtaining bank loans, think again. More than two-thirds (68 percent) of entrepreneurs seeking capital for their businesses in the next six months say they will pursue bank loans, according to a survey from Pepperdine University’s Graziadio School of Business and Management, conducted in partnership with Dun & Bradstreet Credibility Corp.

The next most popular source of financing was a business credit card, cited by 40 percent; followed by credit unions or Community Development Financial Institutions Funds (CDFIs), cited by 36 percent.

The First Quarter 2012 Private Capital Access Index study found that business owners with revenue of over $5 million were more optimistic about successfully raising financing from banks than were smaller businesses. Ranked on a scale from 0-4, larger businesses’ confidence in their ability to get a bank loan averaged 2.3, while businesses with sales under $5 million ranked their confidence level at 1.4.

The numbers show significantly higher interest in bank loans compared to the prior survey findings released in December 2011. At that time, just 37 percent of respondents had actually tried to get bank loans in the past 12 months. In contrast, nearly half of respondents (49 percent) had used credit cards. Of course, it remains to be seen if the 67 percent of entrepreneurs planning to apply for bank loans actually follow through. However, the growth in intention alone is a positive indicator.

“As business owners secure more traditional sources of financing and rely less on their own personal resources,“ said Dr. John Paglia, director of the Pepperdine Private Capital Markets Project and associate professor of finance at Pepperdine University’s Graziadio School of Business and Management, “they will have more discretionary money to spend thereby stimulating our economy.”

Image by Flickr user Philip Taylor PT (Creative Commons)

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Posted in Capital Access, Small Business, small business | 3 Comments »

What the JOBS Act’s Crowdfunding Provision Means for Your Small Business

July 5th, 2012 ::

By Karen Axelton

Have you used crowdfunding to raise capital for your business, or have you considered it? The JOBS Act signed into law by President Obama on April 5 creates new potential for entrepreneurs to raise money via crowdfunding—but also adds new levels of complexity.

According to crowdsourcing.org, global crowdfunding raised some $1.5 billion in 2011.  Prior to the JOBS Act, crowdfunding sites were only able to solicit donations from contributors—not investments. Because these were donations, they were typically small amounts. A crowdfunding provision of the JOBS Act changes that, allowing small business owners to raise investments (up to $1 million per investor) via crowdfunding websites.

As of July 4, you will be able to crowdfund from “accredited investors” (whose net worth, excluding the value of their primary residence, is more than $1 million). But the SEC still has to put final regulations in place as to how entrepreneurs will be allowed to solicit crowdfunding from nonaccredited investors.

The SEC is expected to release these regulations in January 2013. What can you do in the meantime? Use the intervening months to educate yourself about crowdfunding and the various platforms for doing so. One estimate puts the number of active crowdfunding sites at more than 450, and that number is projected to increase by as much as 25 percent by the end of the year.

Some of the benefits of crowdfunding as opposed to seeking financing from angel investors or venture capitalists:

  • It allows you to tap into a market of interested, non-professional investors who are also likely to be customers of your product.
  • You will be able to raise money from people you know even if they aren’t accredited investors.
  • You can raise capital for creating a prototype or market-testing your product before launching it.
  • Unlike traditional capital-raising, crowdfunding also creates public awareness of your business, serving as a marketing tool.

Of course, crowdfunding investments is not a simple process, and you will need to enlist legal and accounting help from someone familiar with the process. In the meantime, some existing crowdfunding platforms to check out include SomoLend, Indiegogo, Kickstarter and Peerbacker. You can learn more about crowdsourcing in general at www.crowdsourcing.org.

Image by Flickr user Karen O’D (Creative Commons)

 

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Posted in Accounting and Taxes, Business Law, Capital Access, Compliance, Raising Capital, Small Business, small business | 1 Comment »

Small Business Owners Feel Confident About Their Businesses and Their Finances

June 19th, 2012 ::

By Karen Axelton

Despite economic ups and downs, overall the nation’s small business owners are feeling very confident about the economy in general, the outlook for their businesses in particular, and their ability to get the capital they need to operate and grow, according to Bank of America’s first Small Business Owner Report.

Small business owners believe the local economy matters more to their businesses’ success than does the national economy. Some 69 percent say the local economy is “very important” to their businesses, which may be why they’re feeling good about their prospects for the next 12 months. Though only 35 percent think the national economy will improve in that time period, 42 percent say their local economy will get better.

In keeping with their self-directed attitude, the majority of small business owners (53 percent) believe their decisions matter more to their businesses’ success than does the overall economy. Younger entrepreneurs (aged 18 to 34) were even more likely to feel this way (66 percent).

Some 31 percent of small business owners plan to add staff in the next 12 months, with the number of employees expected to grow by an average of 25 percent. More than half (56 percent) say their staffing levels will stay the same, which is encouraging in itself after years when many layoffs have occurred.

But staff isn’t the only thing that’s growing for the nation’s small businesses. Nearly two-thirds (61 percent) project their sales will increase in 2012, with 32 percent expecting their revenues to stay about the same.

What challenges are small business owners facing? Not surprising in an election year, 75 percent cited the effectiveness of U.S. government leaders as their top concern. Other worries included oil and gas prices (73 percent), consumer spending (71 percent) and the cost of health care (70 percent).

Overall, small business owners don’t express much worry about the availability of credit, which ranked as one of the bottom three concerns among respondents. More than three-fourths (78 percent) of applicants who applied for a loan within the past two years were approved, and 71 percent of respondents say they currently have enough capital to run their businesses effectively.

Far from thinking it’s too difficult to get business loans, one-fourth of respondents believe today’s lending requirements are appropriate and shouldn’t change. In fact, 20 percent say requirements to get business loans should be even more stringent so that small business owners would be less likely to default.

Image by Flickr user apdk (Creative Commons)

 

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Posted in Capital Access, Raising Capital, Small Business, small business, Uncategorized, Workforce | 1 Comment »

How to Find a Small Business Friendly Bank—and Get a Small Business Loan

June 12th, 2012 ::

By Maria Valdez Haubrich

Small business owners need financing to expand and grow their businesses, but small business loans have never been easy to get—and since the Great Recession struck, funds have gotten even more elusive. The average bank uses just 7.65 percent of its deposits to make small business loans, according to small-business-loan broker MultiFunding.com. That’s why MultiFunding decided to create a new tool that helps small businesses find small-business-friendly banks near them.

The new tool, Banking Grades, allows business owners to search for small business friendly banks by name, address or location. Users can also view a list of the 2,500 or so banks that received an “A” grade.

MultiFunding CEO Ami Kassar explains that the ranking was created by taking all FDIC regulated banks nationwide and using FDIC data to rate the banks based on the ratio of business loans of $1 million or less to total domestic deposits. Here’s what the rankings mean:

A (Excellent): Uses at least 25 percent of its deposits to make small-business loans

B (Good): Uses 10-25 percent of its deposits to make small-business loans

C (Average): Uses 6-10 percent of its deposits to make small-business loans

D (Poor): Uses 3-6 percent of its deposits to make small-business loans

F (Failing): Uses less than 3 percent of its deposits to make small-business loans

Kassar says the banks with the highest grades tend to be smaller, community banks that are focused on helping small businesses. That doesn’t mean these banks are a slam-dunk, however. Kassar says access to credit is loosening up, but only very slightly.

How can you improve your chances of getting a loan? Kassar’s advice includes:

  • Be well-organized. Have all your ducks in a row such as financial reports and statements.
  • Have collateral to pledge against the loan. Unsecured loans are more difficult to obtain.
  • Have good cash flow. The bank wants to feel confident the loan will be repaid.
  • Find the right bank. “Find a bank or lender where the loan officer and the credit officer collaborate and work together to find a way to make it happen [for you],” he says.

While Kassar feels credit unions are also a good source for small business loans, he notes that they file different reports than banks do; as a result, including them in Banking Grades would have been an unfair comparison.

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Posted in Capital Access, Raising Capital, Small Business, small business | 2 Comments »

There’s Good News and Bad News About the Small Business Economy

May 15th, 2012 ::

By Karen Axelton

Are small businesses taking a cue from the nation’s consumers—in other words, borrowing less and paying down debts? That seems to be the case based on two separate reports out from PayNet.

The latest Thomson Reuters/PayNet Small Business Lending Index declined in March, which could indicate slowing in the nation’s economic growth. The Index tracks the overall volume of lending to small businesses nationwide. In March, it declined to 98.5, down from 101.8 in February. Although small business borrowing did increase 10 percent compared to the same time last year, that is the smallest 12-month growth rate since January 2011.

On the plus side, a separate indicator from PayNet, its most recent 30+/90+ Day Delinquency report, found that small businesses are having no trouble paying off their debts. The report, which uses real-time datat to measure the percentage of loans to small and medium-sized businesses that are past due by 30 or more days and 90 or more days, found that accounts in moderate delinquency (late 30 days or more) dropped to 1.39 percent in March, down from 1.47 percent in February. At their height in May 2009 these accounts hit 4.42 percent.

Accounts in severe delinquency (late 90 days or more) hit a record low of 0.34 percent in March. That’s down from 0.36 percent in February. And accounts in default (late 180 days or more) dropped to 0.48 percent in March, down from 0.50 percent in February.

There’s good news and bad news in these two reports. Clearly, the fact that business delinquency is down is a positive sign for the health of the nation’s small businesses. At the same time, the lack of interest in borrowing could indicate small businesses are either feeling uncertain about the nation’s economy, have given up on getting the financing they need, or are feeling too cautious to expand their companies.

What financial steps are you taking in your business these days? Are you focused on debt repayment, or on expansion financing?

Image by Flickr user Vectorportal (Creative Commons)

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Posted in Accounting and Taxes, Capital Access, Compliance, Raising Capital, Small Business, small business, Uncategorized | No Comments »

Small Business Resource Tip: On Deck Express

March 15th, 2012 ::

On Deck Express

Sometimes you need capital for your business at the last moment, when you least expect it. On Deck Express, the new offering from On Deck, is a small business loan platform developed to help Main Street business secure loans. With On Deck Express, small businesses can access loans up to $25,000 in as little as 24 hours. Once business owners set up a profile online, they’ll immediately get insights into their credit profile and cash position. Since the application and approval process is automated, loan options are available quickly. Companies must have been in business for at least one year to use On Deck Express.

 

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Posted in Capital Access, Raising Capital, Resources, Small Business, small business | No Comments »

Choose the Right Path to Getting a Small Business Loan

March 13th, 2012 ::

By Karen Axelton

Are you seeking a loan for your small business? How can you boost your chances of success? One surprisingly simple way is by choosing the right bank to approach before you ever apply for your loan.

While many entrepreneurs start their search for funding at the bank where they currently bank, the bank across the street from their business or the one that has the biggest name, a new study by MultiFunding suggests that if that bank is a major one, you could be making the wrong choice.

Why? Well, MultiFunding’s research showed that as banks get bigger and more bureaucratic, their small business loan balances decrease.

According to MultiFunding’s data, there are about 93,000 bank branches nationwide. Of these:

  • 51 percent are owned by 62 national banks with branches in six or more states.
  • 14 percent are owned by 437 regional banks with branches in two to five states.
  • 35 percent are owned by 6,280 state banks witih branches in just one state.

Now here are some numbers that might surprise you:

  • The average branch of a large national bank manages $4.6 million in small business loans.
  • The average branch of a regional bank manages $6.8 million in small business loans.
  • The average branch of a state bank manages $9.1 million in small business loans.

In other words, the bigger the bank, the fewer small business loans it is making. Overall, large national banks use 4.41 percent of their domestic deposits to make small business loans.  Regional banks use 10.98 percent, and state banks use 14.46 percent.

Multifunding’s conclusion? “Local, community-oriented banks are best equipped to meet the needs of small business owners.”

Of course, it can make a lot of sense to start your search for financing at the bank where you already have your business accounts. But don’t assume that is your best choice. Investigate all your options, and give local and community banks in your area a fair chance. Talk to other business owners in your community and industry to find out where they are getting their loans and what kind of luck they have had with banks in your area.

By choosing the right bank to approach in the first place, you can save yourself time, headaches and the heartache of having your loan application turned down.

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Posted in Capital Access, Raising Capital, Small Business, small business | 1 Comment »

2011: A Good—and Bad—Year for Venture Capital

January 24th, 2012 ::

By Maria Valdez Haubrich

The fourth quarter 2011 data from the National Venture Capital Association is in and there is good news and bad news about the venture capital industry.

The good news is that the amount of money venture capital firms are investing is on the rise; the bad news is that the number of venture capital funds out there is declining. In the U.S., 38 venture capital funds raised a total of $5.6 billion in the fourth quarter of 2011, representing a dollar increase of 162 percent but a 41 percent drop in the number of funds compared to the third quarter of 2011. (In that quarter, 64 funds raised $2.1 billion.) This quarter marked the lowest number of funds raising money since the third quarter of 2009.

In all of 2011, U.S. venture capital fundraising totaled $18.17 billion from 169 funds. That’s a 32 percent increase by dollars compared to 2010, but the same number of funds.

“This past year we saw more venture capital money raised by essentially the same number of firms, a sign that consolidation within the industry is continuing,” said Mark Heesen, president of NVCA, in announcing the data. “We also continued to invest more money in companies than we raised from our investors. Both of these trends – if they continue — suggest that the level and breadth of venture investment is starting to recalibrate to reflect a concentration of capital in the hands of fewer investors. Our cottage industry is indeed getting smaller still and that will impact the startup ecosystem over time.”

How will this shakeout affect small businesses? Consolidation in financial industries generally makes it harder for smaller companies to get backing, as bigger funds with more dollars to invest are more likely to look for high returns and less likely to take risks on smaller firms without a high potential for ROI.

At the same time, a shakeout is also occurring in the IPO market. The NVCA recently reported that in 2011, 52 venture-backed companies went public, representing a value of $9.9 billion. That’s a 31 percent decrease in volume, but a 41 percent increase in dollar value compared to the previous year.

In other words, with both venture capital investment and venture-backed IPOs, the trend is toward fewer and bigger players, meaning bigger—but fewer—deals.

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Posted in Capital Access, Small Business, small business, Venture Capital | No Comments »

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