Commercial Loan Broker

Our New Blog Is ACTIVE

noreply@blogger.com (Harlan A. Friedman) — Sat, 09 May 2009 21:57:00 +0000

We are back posting daily with our insights and thoughts on Commercial Finance. We have decided to post regularly directly on our site Lightning Commercial Funding or Loanforbiz.com.

Please book mark our Commercial Finance Daily Blog.

See You There!

Harlan A. Friedman
President & Broker

Daily Observation - Last Blog for 2009

noreply@blogger.com (Harlan A. Friedman) — Fri, 19 Dec 2008 04:53:00 +0000

I want to be the first to wish you all a very Happy, Healthy & Prosperous New Years.

I wish everyone a very joyous Holiday Season, and I will return on the 7th of January, with a fresh new look to the blog. The blog will be moving to our own website at Loanforbiz.com, we will continue to post for the next 30 days at both locations, but as of February 1, the blog will be on our site.

I am very excited about this change. The new name is the Daily Commercial Loan Blog.

To those loyal readers of the 150 posts that I wrote this year I say thank you for your attention each and every day as I share my personal viewpoints. You might not agree with everything that I wrote but I know you found it entertaining at the least and hopefully educational at the most.

Remember to subscribe to the 10 FREE Special Reports.

Harlan

Daily Observation - Pleading Ignorance

noreply@blogger.com (Harlan A. Friedman) — Thu, 18 Dec 2008 04:44:00 +0000

I hope the title grabbed you, Why would a professional, experienced broker plead ignorance when it comes to pricing a deal. The reason is very simple WE HAVE NO IDEA OF WHAT CAN AND CANNOT BE FUNDED TODAY!

Now I know you think that I have gone off the deep end when I make such a categorical statement, but the truth is we don't. And anyone who tells you they do, unless its their own money don't believe. Now am I saying that the use of a broker is now worthtless because you, Harlan cannot get deals close. NO I'm not saying that at all.

What I am saying is that when talking to your clients share this information with them so their expectations are realistic. Let me give you a perfect example.

We had a call with a potential client that received a "LOI" from a bank, and they wanted me to explain it to them. Granted this was not our LOI, actually it wasn't anyone LOI it was a financing spreadsheet which the "client" treated as an LOI. Well after reviewing this great "LOI", I called the bank that issued it a week before. Guess What?

None of the programs that they were so aggressive about were offered by the bank anymore. The 20 Year fixed which this Bank was well known for is now a 5 and 10 year balloon.

Another example we were talking with another potential client today and they were telling us that they had been negotiating with a bank on a piece of commercial real estate, the bank led them to believe they were VERY interested in the deal, strung them along for about four months, then you guessed it they had no interest in the deal anymore.

So hopefully these two examples will tell you why I consistently tell my clients I have no idea if I can get the deal done today for you or not. BUT, and here's the important but: if I believe in the deal I am going to do everything within my control to fund the deal.

For more on getting deals closed, sign up for your 10 FREE Special Reports on Getting Your Loan Closed! Also visit our website at loanforbiz.com for even more information on loans and financing methods available in these turbulent times.

Daily Observation - Negotiation Tactics

noreply@blogger.com (Harlan A. Friedman) — Wed, 17 Dec 2008 03:51:00 +0000

As nothing is happening in the world of SBA Finance, and the FED bored us today with a rate cut almost to zero, I thought I would borrow some advice on real estate negotiation from George Ross, Trump's Attorney and head real estate attorney for the Trump Organization. George Ross wrote a fabulous book named Trump Strategies for Real Estate: Billionaire Lessons for the Small Investor.

Whether you like "The Donald" or not, these words are truly words of wisdom.

Whether you’re involved in real estate or another entrepreneurial endeavor, you’re always working towards a major objectives. Sure, things don’t always run as smoothly as we would want them to, and sometimes you’make concessions (or “sweeten the deal”) in order to make it work.

But what do you do when you find that you compromised so much that your big picture objectives are no longer in sight? The ultimate goal of any deal is to feel satisfied and better off than before you started working on it. But what do you do if you don’t see that realistic possibility anymore?

Don’t waste your time – it’s more valuable than money. If you don’t see the benefits of the deal anymore, have the willpower to walk away from it.

So how do you know when to walk away? Here are some questions to ask yourself when you notice things change drastically:

Does the deal still make sense to you? Before you even start a new deal or venture, figure out what you want to achieve. This will help you stay focused throughout the process, so when things take a turn for the worst be able to acknowledge the reality of the situation and act accordingly. You’ll be a lot better off admitting a once strong deal has become weak it is better to walk away than see it all the way through.

Do your alternatives look a lot more attractive? To do business from a position of strength, you have to have the ability to look at various potential deals or paths you can take. If you keep the old saying “there are plenty of fish in the sea” in mind, then you’ll ensure that you won’t kill yourself trying to catch one of those fish.

Has the atmosphere changed from cooperative to hostile? People engage in business with people they trust and have a rapport with. Do your best to distinguish between the deal-makers you trust and the deal breakers that drive you crazy.

If your answer is yes to all of the above, then it might time be to stop making concessions and start pursuing another venture. After all, you don’t want to sweeten a deal to the point that it gives you a financial cavity.

I hope you enjoyed tonight's slight deviation. Remember for your next commercial investment visit us at loanforbiz.com, the home of Lightning Commercial Funding. Also don't forget to sign up for your 10 FREE Reports to GET Your Next Loan Closed.

Daily Observations - Financing Franchises

noreply@blogger.com (Harlan A. Friedman) — Tue, 16 Dec 2008 03:37:00 +0000

Tonight I want to address the area of franchise financing. There are certain lenders that all they do are franchise financing, and we work very closely with them. But here's the rub; according to business brokers we work with as well as Franchisors, franchises are just not selling in this economy.

The reason they may not be moving is two fold; one the financing aspect is getting more difficult. Second the borrowers do not have the money to qualify to purchase the franchises as a lot of them have been purchased with cash or money from other investments. To quote one friend of mine he has not sold a franchise in over six months because of the two above reasons.

So why would I spend a blog post on the financing of them. The reason is that they are still do-able under the right circumstances. Below are those circumstances.

Franchise Financing
• Loans selectively available from $250,000 to $5,000,000 throughout the U.S.
• Acquisition of existing franchise businesses are available with additional collateral requirements, unless the franchise is heavily equipment based.
• Start-up requests must be fully secured or show substantial outside income sufficient to cover debt service
• Up to $300,000 with minimum real estate collateral (must have 10 yr. remaining lease plus option)
• Up to $4,000,000 with real estate
• Start-ups must be fully secured by real estate
• Financing may be available for start-up, expansion, refinancing &/or acquisition

Borrower Profile

• Direct (and recent) management experience within the industry is required as follows: A minimum of 5 years GM or ownership experience required for restaurants A minimum of 3 years management or ownership required for all other industries Experience must be recent

• Guaranty required of: operating company (if real estate holding company is used), relevant affiliates, all individuals with 20% or more ownership and other individuals with less than 20% ownership considered key~ with respect to management experience or financial strength

• Borrowers/owners must have clean/acceptable personal credit histories

Please visit loanforbiz.com the website for Lightning Commercial Funding for more on franchising and other financing methods. Also please sign up for your 10 FREE Special Reports to help you get your next commercial or business loan closed.

Daily Observation - Small Business Defined

noreply@blogger.com (Harlan A. Friedman) — Mon, 15 Dec 2008 05:26:00 +0000

As we continue to wait for the new SBA rules and regulations to be enacted. As we also wait to see what if any of the economic stimulus plan will be adopted. As we wait to find out how the economic stimulus plan will affect future SBA funding and as we wait to see if the Secondary Market will return I wanted to address what qualifies as a Small Business under the SBA guideline.

SBA defines a small business as one that is independently owned and operated and not dominant in its field. A small business must also meet the employment or sales standards developed by the Small Business Administration and based on the North American Industry Classification System (NAICS).

In general, the following criteria are used by SBA to determine if a concern qualifies as a small business and is eligible for SBA loan assistance:

• Wholesale - not more than 100 employees;
• Retail or Service - Average (3 year) annual sales or receipts of not more than $6.0 million to $29.0 million, depending on business type;
• Manufacturing - Generally not more than 500 employees, but in some cases up to 1,500 employees;
• Construction - Average (3 year) annual sales or receipts of not more than $12.0 million to $28.5 million, depending on the specific business type.

Even though the SBA-qualifying standards are more flexible than other types of loans, lenders will generally ask for certain information before deciding to use an SBA loan program. Visit our website loanforbiz to see what additional documentation is needed and to see if your business qualifies as an SBA Eligible business. Remember Non-Profits do not qualify for any SBA Financing.

Remember to get your FREE 10 Special Reports on Getting Your Loan Closed.

Daily Observation - SBA Guarantee Fee

noreply@blogger.com (Harlan A. Friedman) — Fri, 12 Dec 2008 04:50:00 +0000

This fee is the exact same everywhere you go in the United States. It is a fee that is set by the Small Business Administration for assisting in the funding of a Business Opportunity 7A or a real estate 504 loan.

I chose that word assisting instead of funding because the SBA does not fund loans, the bank funds the loan, the SBA guarantees a portion of the loan for the benefit of the funding bank. That portion is knows as the SBA guarantee amount of the loan, which is 75% of the loan amount. For example your client buys a business and gets a loan for$750,000. 75% of $750,000 will be what the guarantee fee is computed on or$562,500.00.

The guarantee fee will be 3% of $562,500 or $16.875.00, based on the information below.

FEES ASSOCIATED WITH SBA LOANS
To offset the costs of the SBA's loan programs to the taxpayer, the Agency charges lenders a guaranty fee and a servicing fee for each loan approved and disbursed. The amount of the fees are based on the guaranty portion of the loans. The lender may charge the upfront guaranty fee to the borrower after the lender has paid the fee to SBA and has made the first disbursement of the loan.

The lender's annual service fee to SBA cannot be charged to the borrower. For loans approved on or after December 8, 2004, the following fee structure applies:

For loans of $150,000 or less, a 2 percent guaranty fee will be charged. Lenders are again permitted to retain 25 percent of the up-front guarantee fee on loans with a gross amount of $150,000 or less. For loans more than $150,000 but up to and including $700,000, a 3 percent guaranty fee will be charged.

There is a high probability that due to the economic situation we find ourselves in that the SBA Guarantee Fee may be removed completely for two years. This is one of the proposals currently being considered, but for now these fees remain in place.

Sign up for your 10 FREE Special Reports to GET Your Next Commercial & Business Loan Closed. Visit Lightning Commercial Funding to hear an excerpt of a radio interview that we just completed on qualifying for commercial and business loans.

Daily Observation - A New Financing Alternative

noreply@blogger.com (Harlan A. Friedman) — Thu, 11 Dec 2008 06:09:00 +0000

Tonight I am writing about an area that I have little knowledge about, other than to know that this loan program exists. I have received the information about the USDA loan program B&I and wanted to share it with you. In the proper locations, rural area with a population less than 50,000 people this is a very viable alternative to SBA Financing.

So below is an an email that I got from an SBA Lender back east that specializes in B&I loans. I know this is an area that I am going to be researching over the holidays and plan to incorporate it into our loan programs that we offer.

The main program that businesses are able to utilize is the Business and Industry Program through the USDA. There are no restrictions except for location; it has to be in a town that has a population less than 50,000. Underwriting is similar to doing an SBA 7(a) loan. Unlike going through the SBA, the bank is able to offer fixed rate options. Amortizations are longer through the USDA (30 years real estate/15 years equipment) which generally is able to provide more cash flow to the borrower. The guarantee fee is 2% of the guaranteed portions. Guarantee %’s are 80% up to $5.0M, 70% up to $10.0M, and 60% up to $20.0M.

Eligible properties and use of funding are start up, expansion, business acquisition, commercial real estate, working capital, equipment inventory and soft costs. A crucial difference between the two programs is that the B&I can be used for non-profits which is strictly forbidden with a traditional SBA Loan. In addition there is no business size restriction, and loan amounts up to $20,000,000.

Sign up for your 10 FREE Special Reports on Getting Your Next Commercial Loan Closed. Visit loanforbiz.com the home site for Lightning Commercial Funding.

Daily Observation - Debt Refinancing Cont.

noreply@blogger.com (Harlan A. Friedman) — Wed, 10 Dec 2008 04:28:00 +0000

Tonight we continue with our theme of debt refinancing. Last night we talked about SBA Business Loans and debt refinancing now we shift our focus to commercial real estate loans.

Commercial Real Estate Loans or Investment Property Loans offer a greater chance to refinance them providing you meet certain qualifications and time frames. Both the qualifications and the time frames have changed drastically within the last six months as everything else within commercial finance has.

Before we could re-appraise a property and if there was equity we would be able to refinance any existing debt as well as give our client additional capital providing there was sufficient equity in the property. Loan to Value ratios bordered on 75% to 85%. Lenders were not concerned about the use of the cash out an as long as you were current on the loan, had good credit and the property appraised at more than what you originally purchased it for the deal was done rather easily.

NO MORE

Now most lenders will not even consider a debt refinance if you have not owned the property for at least two years or longer. Next even if you owned the property for two years or more they want to know exactly what you paid for the property and then they calculate what increase in value they believe is really there not necessarily what the appraiser says is there.

Next they look at the net operating income of the property and add at least another 15% to 20% to the bottom line expenses. then they examine your tenants and how long they have been a tenant as well as when their lease expires and the length of the tenancy.

Now the most important point! If they believe that you are using the money from the cash out for other than improving the property (increasing the value to the lender) they are not in favor of doing these loans at all. Paying yourself back for expenses associated with the property is Ok, but using the money for paying debt is not longer looked upon favorably.

Visit loanforbiz to sign up for your 10 FREE Report on getting your next loan closed.

Daily Observation - Debt Refinance

noreply@blogger.com (Harlan A. Friedman) — Tue, 09 Dec 2008 04:44:00 +0000

So can we get cash out of our properties to pay off debt? Seems like this is the most popular question we get every day. And of course I will have to answer to the client it depends? So rather than just leave you with that answer I will attempt to shed some light on the question.

Before we can answer it though we have to decide if we are going through an SBA program or are we talking about a straight commercial investment.

To get money back for a loan that is going to be approved by the SBA all debt will have to be 100% business related. In addition to be 100% business related it will all have to be documented, as well as traced from where it was borrowed from to what it was used to pay for.

For example if the money was used for salaries rather than equipment it may be much harder to get the money back through a refinance. The SBA lenders want to see that the money was actually used in the business for purchasing tenant improvements, equipment, inventory anything that can be turned back into future company profits. Working capital loans that are not being used for true expansion are getting much harder to get approved.

So before you ask for a debt refinance as part of working capital for a small business loan make sure you can properly document the need as well as the past expense. The other requirement for debt refinance for SBA loans is that the SBA can only take out a loan that is more expensive then the new SBA loan proposed. Not only must their be a substantial savings between the two loans, the terms of the SBA loan also must be better. Its getting harder and harder to establish the refinance of an existing loan with an new SBA loans.

In my opinion its better to refinance a non-SBA loan with cash or cash equivalent and then apply for an in increase or a new SBA loan that has nothing to do with a debt refinance but a request for expansion capital etc. The request will most likely be approved if its for a growing company with strong financials, this most likely will not work for a start up operation.

Make sure you sign up for the FREE 10 Reports on Commercial and Business loans, or visit loanforbiz.com for more details.

Tomorrow night we examine debt refinance for a commercial investment.

Daily Observations - 1031's

noreply@blogger.com (Harlan A. Friedman) — Fri, 05 Dec 2008 00:41:00 +0000

Tonight we are going to look at 1031 exchanges. A 1031 exchange is a tax move to avoid the capital gains from selling a property as long as you meet certain requirements by acquiring a property of like kind. The purpose of this blog is not to educate you on the entire 1031 exchange process, which I recommend that you hire a lawyer or a CPA for.

What I want to talk about is the mistake of identifying properties before you have found out that a lender is willing and most importantly in today's economic environment able to fund the transaction. Today not all properties that have been identified are financeable. Even though a property may be at a high CAP Rate and cash flowing like a cash cow should doesn't mean that lender today is going to finance that particular property for that particular borrower.

The problem is that once you "legally" identify a property its identified. AND you can only legally identify three properties. If you are not able to fund any of the three identified that client loses the ability to take advantage of the 1031 exchange, as its now closed to you.

So to avoid losing the 1031 exchange pre-qualify the properties ahead of time before they are legally identified.

For more on getting your loan closed download our free reports at getyourloanclosed.com.

Daily Observations - Still Another Reason

noreply@blogger.com (Harlan A. Friedman) — Thu, 04 Dec 2008 03:48:00 +0000

Tonight we are back to our SBA discussions. After reading a piece today in the paper there may be another reason why the amount of SBA Loans is decreasing. We actually saw an example of this today with a closing that we just had., but more about this in a minute.

Reason Number Six if you are counting, the SBA Guarantee Fee.

Before I can explain why this is an issue I will first explain what it is. Every loan that a bank issues that is SBA approved is guaranteed by the SBA. The price of that guarantee by the SBA is the Guarantee Fee. The way the SBA Guarantee Fee works is as follows. The SBA charges a certain percent of the loan amount borrowed reduced by 25%, For example a $300,000 loan guarantee fee is based on a $225,000 amount. and that amount is multiplied by a percentage point varying between 2 .0 to 3.0 percent depending on the size of the loan guaranteed.

What this guarantee does is to protect the lender in the event of a default by the borrower. So here's the issue. What I found out today is that if the bank does not dot all their (I')s and cross all their (T)'s perfectly, the SBA guarantee will not pay. Therefore the bank would not be able to recapture their loss.

Its no wonder the lenders are concerned about doing SBA Loans. If you knew that you had no guarantee that the SBA would pay in the event of a default would you do new loans? So back to today's' experience.

We had a closing today that the lender told us the docs would be ready two days ago. It took them over two full days to review the docs after the loan was fully approved and the docs were drawn. It's almost like they were afraid to release the docs. So please advise all your clients that the doc signing dates will be later than what is expected. The reason for this is the bank is reviewing the loan docs, then re-reviewing the docs and then finally having a final review of the docs before they are released.

Now we will see how fast they fund as they have to review the docs again now that the client has signed them all. Stay tuned as we undoubtedly will find reason number seven why the SBA Lenders may not be coming back.

Make sure you sign up for the 10 FREE Special Reports based on my new book GET Your Loan Closed!

Daily Observations - Words of Wisdom

noreply@blogger.com (Harlan A. Friedman) — Wed, 03 Dec 2008 03:53:00 +0000

Tonight we leave SBA behind and talk in general about commercial loans. I found this piece that was sent to me about two years ago and I have updated the ratios and the numbers to meet today's exciting environment. The concepts still work, so take heed. These are Commercial Loan Words of Wisdom, which are becoming part of my next piece. "The mistakes that borrowers make" which I will be sharing in January with our clients and centers of influence.

But tonight make sure that you sign up to receive our 10 FREE Special Reports to GET Your Loan Closed!, or visit loanforbiz.com for much more on commercial loans. Now the words of wisdom:

No such thing as 100% financing

If you have scores below 600, expect much higher rates if a lender can even be found for your project.

If you want a construction loan, you will need at least 30-40% of total project cost. If you don’t have that kind of equity you’re looking at too expensive of a project. High leverage construction loans are only available if you have high net worth and are an experienced developer. PS this was changed from 20 to 25% when the article was first written.

Small loan amounts are often the toughest to work and have the most problems. Don’t waste your time on loans under $200,000

Apartment loans normally take 45 - 60 days from time of signed LOI (letter of interest). If you get a call that requests under 45 days, it’s possible but difficult. I have seen loans close in less time, but the appraisals cost extra, and everybody has to get documents in on time. If one link in the chain breaks, 30 days will come quickly.

Lenders order the appraisal. The typical turnaround is 3-4 weeks.

Always look at purchase contracts ASAP. If they’re short, you will want to have the buyer request an extension and make sure everybody is on the same page. Deals blow up because sellers will not extend contracts, and buyers assume they will.

Commercial loans generally take 45-60 days.

When talking about LTV, just because guidelines say 75%, doesn’t mean the borrower will get 75%. Every deal is based on the cash flows (net income) of the property. I can lend up to 70% or 75% on most types of property, but many times (used to be sometimes), cash flows support much less. Before you quote LTV’s or max loan amount, show us the figures.

Daily Observation - It May Not Work

noreply@blogger.com (Harlan A. Friedman) — Tue, 02 Dec 2008 02:50:00 +0000

Tonight we are back to SBA related blogs. I have been talking to many of the local California lenders that I work with and the consensus is that the plan to move to LIBOR, thus guaranteeing that the secondary market was to follow is DEFINITELY in question this evening.

The thought was that by moving away from a prime based product to a more aggressive LIBOR based product the secondary lenders would come flying back to make a market and thus free up capital for the small business borrower. Nothing today is further than the truth according to the contacts that I have.

I am going to quote a piece from The Los Angeles Times that will perfectly echo my thoughts, then I will come back with what I believe is one of the issue behind the issue. So first the quoted material.

Loans guaranteed by the Small Business Administration have dropped sharply in the last year. Small-business operators have seen other cash sources dry up, including home-equity loans, conventional business loans and even credit cards.

One expert didn't dispute the need to unlock the secondary market for such loans but said it was unclear how, and whether, that would work.

"There is not enough detail on the program yet to really know how much impact it's going to have and whether it will result in freeing up more capital," said the chief executive of CDC Small Business Finance Corp.located in San Diego. His company makes SBA real estate loans and sells them on the secondary market.

That market has suffered as investors find higher interest rates in other markets.

The above are the more obvious reasons why the lenders might not becoming back so quickly. But I heard today that the infrastructure for the loan programs to shift from a quarterly billing cycle to a monthly adjustment cycle is extremely expensive and very complicated to make the transition to. Until this transition is made no lender is going to offer the LIBOR based product. In addition to the infrastructure the pricing is too close to Prime now and there is no real benefit for a secondary market to buy the loans because they would have no where to sell the paper after they acquired it.

For more on the SBA programs visit loanforbiz.com and request our 10 FREE Special Reports on getting your commercial and business loan closed.

Daily Observation - CASH Flow

noreply@blogger.com (Harlan A. Friedman) — Wed, 26 Nov 2008 02:57:00 +0000

Tonight I want to re-examine the word Cash flow. By the way I deliberately capitalized cash flow. Because without cash flow there is no project, simple that's just the way it is today. Where before we could cross-collateralize or pledge additional assets, not any more. No cash no deal. Also what you consider cash flow the lender will definitely reduce that total amount by all their ancillary fees and deductions.

I am going to share with you information from Special Report #5 Understand How Cash Flow is the Number One Determinant if your Loan will be Approved. Get this FREE Report as well as the other nine at loanforbiz.com or getyourloanclosed.com.

What is cash flow?

Cash flow is defined differently depending on what you are acquiring. For example if you are buying a business the cash flow is more aptly called Sellers Discretionary Earnings (money which is left at the end of the month for the seller after all debt service and other expenditures are covered). Actually, business brokers use SDE to determine the selling price of a business, but more about that latter.

If you are purchasing a piece of real estate, then cash flow is that money which is left over after you deduct all your debt service and operating expenses for the property. Once that net amount is determined the lender will allow you a certain percentage of the available cash flow for the new loan. The total dollars that you are lent is ascertained by the calculation known as debt service coverage ratio.

Debt service Coverage ratio is the new loan’s expected annual debt service divided by the current yearly net cash flow. Today more than ever lenders want to know if you have more cash available then is projected to meet your debt obligation.

Another point to ask yourself is…

WHY WOULD YOU BUY A PROPERTY THAT IS NOT CASH FLOWING?

We are currently working with a client that is purchasing a piece of property knowing today that it is currently a poor investment, but they have information a major thoroughfare will be built through the town, so they are betting on the future value of the property even though today the economics don’t make sense.

So how is cash flow really calculated from the lenders point of view? The lender will calculate cash flow very differently than the prospective borrower. I cannot tell you how many times I have a client demonstrate to me that the project is cash flowing at a 1:1.25 ratio, and the lender comes back with their calculations at 1:105, or even less.

Why such a discrepancy? Who is Right?

The reason for the discrepancy is the lender will add in all expenditures and apply them to the bottom line. The key term in the last sentence is all. All means expenses that don’t appear today on the seller’s cash flow analysis, income and expense statement or even in tax returns.

How can these expenses be applied when they do not appear anywhere?

Again the reason is lenders always look at the worst-case scenario, which is, they have to take the property back due to foreclosure. If the lender has to take the property back they will have marketing, leasing and management expenses to run the property. Most borrowers will reduce or totally eliminate these costs. The buyer’s rational is they are going to do the leasing, and marketing of the property. Borrowers also assert they can perform these duties for a lot less than the cost of a professional manager or management company.

I’m not telling you this to scare you, but to prepare you.

As I mentioned previously Cash Flow is King, We want to make sure that you are accounting for all expenditures. By the way any extraordinary expenses such as a new roof or one time only equipment purchases are not deducted against cash flow as they are one-time non-recurring expenses.

Daily Observations - We Need to Share

noreply@blogger.com (Harlan A. Friedman) — Tue, 25 Nov 2008 01:48:00 +0000

Tonight's blog is a bit different than usual. Every night I share a new idea or thought about what is happening in Commercial Finance or Business financing. But tonight I don't have anything new to share. BUT I do have a very important point I want to make.

WE MUST SHARE, I have posted 137 new items. But here's the rub nobody is passing the information onto the ultimate person that needs the information. Also the initiator of the new programs is not getting the word out either. For example the SBA has not shared with the average person that the SBA 7A, the mainstay of SBA Loans has changed drastically.

I can hear you saying to yourself, why should they share the info to the public at large, your statement is not really meaningful because there would be no need for the public to know, unless of course they are borrowing money. And yes, I would agree with that premise, so lets narrow the scope of people that need to know. How about the real estate industry as a whole. Do you think it would be beneficial for them to know?

I would. So I spent the last five days calling commercial Realtors asking them if they knew about all the relevant changes to financing and real estate transactions that the SBA is enacting. Guess what they did not know either.

So I narrowed the scope even further and started to call business brokers and asked them the same question, and guess what they had no idea either.

So what I would like to recommend is that if you read something that no one else has shared with you, please tell your friends etc. Only by getting the word out to our potential clients, or centers of influence can we be of service to people in general. And TODAY we all need to help each other.

For 10 FREE Special Reports to help you close more loans visit loanforbiz.com.

Daily Observation - Your Credit

noreply@blogger.com (Harlan A. Friedman) — Mon, 24 Nov 2008 01:42:00 +0000

Tonight since it is Sunday when I 'm writing this blog there are no new SBA Updates so I thought I would change the topic and editorialize for a bit. We need to take some action to help prevent what is occurring to every one's credit.

I don't believe the issue that I am going to share with you is an isolated one, and maybe just maybe we can get some political press to help support our claims.

The average person today is facing this situation and we need to act to get it halted. As the value of peoples property which the lenders have takes as loan collateral have been reduced substantially over the last year, their overall credit is being affected drastically because the lenders have limited their amount of exposure to borrowers running up more and more debt. I applaud that situation because the lenders are looking out for themselves which they always do, and so they say they are protecting you and I from going further into debt. A noble response, if I have ever heard one.

But here's the problem. If you are aware and understand the credit scoring models you will immediately see the self-fulfilling prophecy the lenders are creating. They are stating that more and more borrowers are having credit issues so the lenders are freezing credit. Their rationale for freezing credit is that the reporting agencies are lowering credit scores due to the economic situation. However by the lenders lowering your available credit, the ratio to used credit to available credit increases significantly, and that increase causes the credit bureaus to lower your credit score even more.

For example lets say you have a $100,000 line of credit and you have borrowed $25,000,which is a 25% ratio of credit borrowed to available credit. Now the lender arbitrarily reduced your line of credit because your home value statistically may have fallen. So lets say they reduce your line of credit to $50,000, you are now at a 50% ratio, without you doing anything. That original 25% ratio is now at 50% which is going to lower your credit score. Now if the lender freezes your credit at $25,000 you are at 100%; which will significantly lower your credit score.

We need to let the lenders freeze your account if it is waranted but not alter the amount of available credit so that credit scores are not being affected. If the lenders want to protect themselves let them block further usage of credit till collateral values return but don't reduce available credit on paper. The credit score models would not be effected, and the lenders would be protected. A win - win scenario!

For more on the 5C's of credit opt in to receive our 10 FREE Special reports or visit loanforbiz.com for more information on credit scoring models.

Daily Observation - It's OK to Pay More

noreply@blogger.com (Harlan A. Friedman) — Fri, 21 Nov 2008 04:46:00 +0000

If you remember Gordon Geko from Wall Street staring Michael Douglas and Charlie Sheen making his speech to Toldar Stock Holders, Greed is Good, well we are there again. Tonight we continue looking at the changes the SBA is making and the reason for it. As I have been writing about all week, LIBOR is now the new rate of choice for SBA Lenders.

For more on SBA Financing and what this really means visit loanforbiz.com and request our 10 FREE Special Reports which will help you get your loan closed.

But what I have not shared with you till now is the real reason why the lenders will come back to the market. GREED, Yes GREED with a capital "G". If we look at how the lenders fund loans it will become very apparent. Most of the banks are paying LIBOR rates for their cost of funds. So if they can now charge 300 basis points greater than LIBOR and on top of that they can add their spread, its no wonder the secondary market will return.

Now I'm not trying to insinuate that the lenders are not trying to stimulate the economy by lending again, but they are certainly not doing this to be altruistic. Lenders are in the business of lending money and if they can lend their money and make a profit then I say good for them, but more importantly good for us.

I want to close tonight's blog with a snippet from Entrepreneur's Magazine INC.

"The upshot for borrowers is that they'll have to pay more. But in the SBA's view, that's OK. "The challenge small businesses face today is not the cost of capital, it is access to capital,” Acting SBA Administrator Sandy K. Baruah said in a press release. “Interest rates are at historically low levels meaning money is inexpensive, yet lenders aren't lending and borrowers aren't borrowing. This indicates markets are frozen due to liquidity concerns."

Not surprisingly, the downturn seems to have had a greater impact on start-ups, though only slightly so: their share of total SBA loan dollars has fallen a few points, while existing firms' share has grown...."

Daily Observation - More Help for SBA

noreply@blogger.com (Harlan A. Friedman) — Thu, 20 Nov 2008 03:56:00 +0000

This evening I again want to stay on the topic of SBA financing. As I wrote yesterday and shared with over 35 people this morning SBA is getting an overhaul. The ultimate goal of the overhaul is to bring back the secondary market. If we are successful in getting the secondary market back, then SBA 7A loans as we knew them a year ago will come back again. The lenders will have a place to sell their loans and then hey will be more willing to lend again.

If the lenders do not have a place to sell their loans then they are left portfolioing the loans and they will continue to remain very skittish on new loans. They will only fund the cream of the crop. Below is a copy of a senate proposal that is being raised to help bolster small business and small business financing.

For more on how we can benefit your small business please visit loanforbiz.com, while there sign up for your FREE 10 Special Reports to help you get your next loan closed.

SOURCE U.S. Senate Committee on Small Business & Entrepreneurship

Sen. John Kerry (D-MA), Chairman of the Senate Committee on Small Business and Entrepreneurship, and Sen. Charles Schumer (D-NY), a senior member of the Senate Committee on Banking, are urging their Republican colleagues to put politics aside and help America's entrepreneurs stressed by a worsening economic climate. Several small business proposals within the economic stimulus package introduced this week would help alleviate the credit crunch, providing much-needed help to small firms.

"As the lifeblood of our economy, small business owners bear much of the burden when our system struggles," said Kerry. "To keep our economy moving we need to help these everyday Americans who are pleading for help as they try to pay their bills and stock their shelves for the holiday season."

When credit from the private sector is frozen, small firms rely on the Small Business Administration's (SBA) loan programs to free up credit. The stimulus provides $620 million targeted to help firms gain greater access to these SBA loans. Of that money, $615 million would temporarily eliminate fees charged to borrowers and lenders who participate in these government-backed programs, helping to support $22.5 billion in loans to entrepreneurs. Additionally, $1 million is provided to support $8.5 million in microloans and $4 million for microloan counseling. These actions would free up credit, give small businesses more outlets for help and allow firms to create and retain jobs in these tough economic times.

"Small businesses are looking to us for immediate help and leadership," said Kerry. "Entrepreneurs can't afford to wait another month, or more, for the rescue package to begin working. And frankly, neither can our economy or the hundreds of thousands in need of jobs.

"With the credit markets tighter than ever and the economy plunging in to greater turmoil every day, we need every tool in the toolbox to ensure small businesses across the country get the loans they need," Schumer said. "For many right now, government loans could be the only option. Our plan will reduce needless fees and streamline the process so businesses don't have to wait months and pay through the nose to get the lines of credit they need."

Copyright (C) 2008 PR Newswire. All rights reserved

Daily Observation - There Is A Choice

noreply@blogger.com (Harlan A. Friedman) — Wed, 19 Nov 2008 03:48:00 +0000

SBA has shared more guidelines as to the upcoming change from Prime to LIBOR and in the nutshell a Lender has the option of staying with Prime or changing to LIBOR. I am now going to copy a great deal from the SBA Update Notice that we just received so you can get a true flavor of what is going on and more importantly as to why it is being changed. Enjoy the balance of the article. For more on SBA financing visit loanforbiz.com and make sure you sign up for your 10 FREE Special Reports on Getting Your Loan Closed.

Background

Under SBA’s loan guaranty program, greater numbers of small businesses can obtain loans from banks, small business lending companies, credit unions, and other participating financial institutions, because the Agency provides various incentives and risk mitigators to make these loans profitable for lenders. However, the recent turmoil and uncertainty in the financial markets have seriously affected SBA lenders’ cost of funds, their ability to sell SBA loans in the Secondary Market, and their liquidity. This has led to severely reduced small business access to capital (including SBA lending) at a critical juncture for the U.S. economy.

Due to the globalization of the financial markets, many SBA lenders’ source and cost of funds (and/or internal yield model) is partially or completely based on the London Interbank Offered Rate (LIBOR) rather than the Prime Rate, which traditionally has been SBA’s base interest rate for establishing the maximum interest rate lenders can charge for SBA-guaranteed loans. As a result, increasing numbers of lenders use LIBOR as the base rate for their internal business models and for pricing their loans. SBA’s requirement for lenders to use the Prime Rate to price 7(a) loans unnecessarily complicates their business practices and expands their risk, which increases their costs for making such loans.

Historically, LIBOR rates, which are shorter term interbank lending rates, have consistently been about 3 percentage points less than the Prime Rate, which has historically been the lending rate charged by U.S. banks to their best customers. This 3 percentage point differential between many of SBA’s lenders’ cost of funds and the Prime Rate, which is the basis for SBA’s interest rate maximums, has helped SBA lenders to profitably make small business loans. However, due to the recent volatility and uncertainty of the international financial markets, the 3 percent spread between LIBOR and Prime has been greatly reduced, and on some days LIBOR has actually exceeded the Prime Rate. As LIBOR rates more closely approximate the Prime Rate, SBA’s lenders cannot profitably make SBA loans based on the Prime Rate. As a result, they have substantially reduced or eliminated their SBA lending in recent months.

With the uncertainty in the financial markets, the convergence of Prime and LIBOR rates, and the allowable interest rate charged on SBA loans being based on the Prime Rate, SBA lenders are encountering significant problems with selling their SBA loans on the secondary market. Also, with LIBOR based funds being the source of funds for many secondary market investors, the convergence of LIBOR and Prime Rates has reduced the demand for SBA backed securities. As a result, many lenders are experiencing major liquidity problems and have greatly limited or discontinued their secondary market activities, which has limited their capacity to make SBA loans.

Changes in SBA Regulation and SOP

As a result of these issues, and following discussions with the lending industry, SBA has concluded that allowing lenders to use an adjusted thirty day (one month) LIBOR rate as a base rate for pricing SBA loans will ameliorate several of the factors that are impeding small businesses’ access to capital through SBA’s guaranteed loan programs. SBA is allowing an adjustment of 3 percentage points to the thirty day (one month) LIBOR rate to reflect the historical 3 percentage point spread between the LIBOR and the Prime Rate and to help reduce the uncertainty and the financial risk to lenders and to secondary market participants.

The Agency has therefore revised its regulation at 13 CFR 120.214(c) and, henceforth, the allowable base rate establishing the maximum interest rate lenders may charge for SBA 7(a) loans will be the following: 1) Prime Rate; 2) Thirty day (1 Month) London Interbank Offered Rate plus 3 percentage points; or 3) Optional Peg Rate. The Prime or LIBOR rate will be that rate which is in effect on the first business day of the month, as identified in a national financial newspaper or newspaper website each business day. These changes are applicable to 7(a) loan applications that lenders may currently have in process, but they are not applicable to loan applications that have already been received by SBA.

Daily Observations - LIBOR is IN

noreply@blogger.com (Harlan A. Friedman) — Tue, 18 Nov 2008 03:22:00 +0000

The SBA has formally announced today that the new preferred index is LIBOR. As for Prime we are not sure as of this writing if Prime is completely out or the lender has an option to go with LIBOR or Prime. What we do know is that if you have filed for and received an SBA number for deals in transition you will continue to stay at the index that was presented and approved by the SBA.

Should the lender want to change to the more aggressive LIBOR rate they would have to cancel the SBA control number that was issued and re-apply for a new number. SBA will now have to change all of their base assumptions to the following.

Index - LIBOR

Pricing to get to the base index is LIBOR plus 300 basis points

Lender can then add up to another 275 basis points.

LIBOR Rate is the One month LIBOR

Which now means that loans are to be adjusted monthly rather than quarterly as they have been over the last decade or so.

As I shared with you a few posts ago this should bring the secondary market back and thus lenders will start to free up credit to stimulate small business, and thus start to stimulate the economy as a whole. There are also other provision which the new administration is recommending that will also help grow the economy. I will share those as they become available.

As we find out more about the LIBOR change I will continue to bring to this blog that information. Should you want to know more about SBA Financing please visit loanforbiz.com. To get your 10 FREE Special Reports sign up here.

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noreply@blogger.com (Harlan A. Friedman) — Sun, 16 Nov 2008 21:43:00 +0000

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Daily Observations - SBA Updates

noreply@blogger.com (Harlan A. Friedman) — Fri, 14 Nov 2008 04:51:00 +0000

WASHINGTON, DC – In response to the credit crunch, today SBA’s Acting Administrator Sandy K. Baruah announced important loan program changes to help the agency’s lending partners increase access to capital for small businesses.

First, an interim final rule allowing new SBA loans to be made with an alternative base interest rate, the one month LIBOR rate (London Interbank Offered Rate), in addition to the prime rate, which was previously allowed. In the past 60 days, both the prime and LIBOR rates have not yet returned to their historical relationship—of roughly 300 basis points between the two rates. The mismatch between the rates is squeezing SBA lenders out of the lending market, since their costs are based on the LIBOR rate.

"This change will help more small businesses obtain capital to grow their businesses and create new jobs," Baruah said. "By allowing both rates, SBA is making its programs more flexible, increasing opportunities to access capital and giving both lending partners and small business customers more options to meet their needs."

The second change allows a new structure for assembling SBA loans into pools for sale in the secondary market. The enhanced flexibility in loan pool structures can help affect profitability and liquidity in the secondary market for SBA guaranteed loans, especially with the current market conditions. Because the average interest rate is used, these pools are easier for pool assemblers to create, thus providing incentives for more investors to bid on these loans.

"The challenge small businesses face today is not the cost of capital, it is access to capital," said Baruah. "Interest rates are at historically low levels meaning money is inexpensive, yet lenders aren’t lending and borrowers aren’t borrowing. This indicates markets are frozen due to liquidity concerns. This interim final rule is an important step to reenergize the lenders to make SBA-backed loans and will help open the gateway of capital for entrepreneurs."

"SBA moved quickly on these changes after consulting with small businesses, lending partners
and other government agencies," said Eric R. Zarnikow, SBA’s Associate Administrator for the
Office of Capital Access. "We’re confident these solutions will help free up capital so lenders can continue to make SBA-backed loans."

By addressing market issues that were impeding the funding streams for both lenders and small businesses, SBA is making capital more available to America’s small businesses. The SBA will be issuing additional technical guidance to lenders in the coming weeks relating to the implementation of these important changes.

What this means in theory is that the lenders should be returning back to the capital markets, but as I said in theory only time will tell.

Daily Observations - "Games People Play"

noreply@blogger.com (Harlan A. Friedman) — Thu, 13 Nov 2008 05:41:00 +0000

Too many people are playing games. The lenders don't want to commit because they don't want to be "stuck" with an interest rate that in the long run is going to have them losing money. For that reason we are seeing less and less fixed rate proposals.

Borrowers are playing games these days as well. I'm not saying that the borrowers don't want to commit but because they are unsure where interest rates as well as this economy is heading they are very skeptical. They want to pull the trigger but something is preventing them from moving ahead. We are spending more and more unproductive time with borrowers that are afraid to move forward.

We have to make sure throughout our due diligence, and project gathering stage that they really want to finance their project. Wanting to finance and doing it are turning out to be two different things. If you are a potential borrower reading this I do not mean to aggravate you, but I do mean to have you personally examine if you want to move forward or not.

Going from lender to lender to get the best deal is no longer an option. In addition the lenders talk to each other and its very easy to find out if you are shopping a deal, especially when the lender checks the credit report and sees various inquiries from their competitors in the same time frame.

As brokers we are also told by our faithful lenders if the client is shopping us. Regretfully once a lender knows they are being shopped they usually do not want the deal anymore. Every lender wants an exclusive, so please remember that.

Lastly if you are a broker show loyalty to your lenders it will pay you back hundredfold when this economy comes back, as we all know it will. Remember to sign up at GET Your Loan Closed for our new 10 FREE Special Reports.

Daily Observations - "Push" the Client

noreply@blogger.com (Harlan A. Friedman) — Wed, 12 Nov 2008 02:10:00 +0000

I received an e-mail today from one of my lenders and he ended the e-mail with:

Make this deal happen before it may go away.

What was this lender trying to share with me? Was he saying that if we don't get this LOI executed now, today, that this lender may not be doing these loans tomorrow? Or was he saying that the deal that is strong today will not be considered strong tomorrow, or was he just pushing me to get a deal closed because he has not closed any deals and his job may be on the line?

None of these reasons really matter. The point is we have to now push our clients when lenders are offering to fund transactions. I have never been a "pushy" salesperson, but today I have become one, not for my benefit but for the benefit of my clients. If your clients really want a loan they have to move quickly. No longer can they spend time shopping around from lender to lender, if an LOI is proffered let them sign it and start the process of documentation gathering immediately.

Because tomorrow is another day, and who know what banks are going to fail, or what lender is going to stop lending. Even today I received an e-mail from a new company that is specializing in displaced SBA lenders. They are trying to re-brand them and get them back into the job market. Share this with your clients today, and get them to take action. Anything that you can motivate them with is fair game.

Make sure you sign up for our 10 FREE Special Reports to help you get more loans closed in 2009.