Posted on Nov 24, 2011
SBA Loans - Still Available?
There’s been a lot of negative news these past few weeks related to business lending. You’ve probably heard there’s a credit freeze and you may think that means nobody’s lending. But Don Johnson, owner of Diamond Financial Services, New Jersey, says that’s a misconception. “Our company works with over 25 lenders so we really know what’s going on with the state of SBA and franchise lending. We’re prequalifying a little more carefully, but our success rate is still high. In the media it’s all doom and gloom, but loans are getting approved. You just have to know how to do it. Most people don’t know how to do projections or put together a loan package. Over 80% of loans get declined due to packages that aren’t complete or correct. And the rest is simply not going to the right type of lender. The money is out there, you just have to know where to go.”
Still, things are different these days, which Johnson points out:
- Lenders are putting more emphasis on experience and some people may have to make a higher down payment. Down payments across the board on startup franchise loans could be more than 25-30%.
- Loans for newer franchise concepts need stronger borrowers.
- Lenders are being more cautious about quick expansion or concepts that have a high default rate on their SBA loans.
- More lenders are either changing their criteria or limiting their business to specific loan sizes, certain industries, or certain states. For example, a minimum loan that used to be $100,000 might now be $250,000.
- Lenders are taking longer to give loan approvals. Instead of 2 weeks, it can now be 2-3 weeks or maybe a month.
Johnson says things are especially good for franchise systems with a strong track record and 100+ units. “Some lenders are offering favorable terms such as 15-20% down with no collateral for certain franchise systems,” Johnson says.
For everyone else, Johnson says there are some changes pending with SBA, which should prove helpful. “The government is trying to give more incentives to lenders to start lending money through the SBA such as smaller fees and increasing the guarantee (potentially) up to 90%. And they’re trying to get the loan size increased under the SBA 7(a) loans from $2 million to $3 million. At the same time, the bailout package is trying to get more money to banks and get rid of some of their debt on the books. All in all, the lenders should be in a better position to lend and be more aggressive.”
Diamond Financial Services
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