The Little Guys Get Their Bailout (Sort of)

On Monday, banks began taking applications for the Small Business Administration’s new no-interest, deferred-payment bridge loans, just a week after the agency issued guidelines for the program. Though the early anecdotal evidence suggested that banks were leery of the initiative, it now appears that institutions, at least those that already work with the S.B.A., stand ready to make the loans, if somewhat reluctantly. However, demand for the loans is certain to outstrip supply, partly for reasons that call into question the way the program is going to be operated.

America’s Recovery Capital, as the program is called, was a provision of the February stimulus bill. The idea was to give small firms under financial stress a chance to catch their breath: The A.R.C. loans, up to $35,000, carry no fees and no interest, and are to be used to pay down existing debt. A borrowing company doesn’t have to begin repaying the loan until a year after it receives the final installment. Should it default on the loan, the S.B.A. will make the bank whole. To qualify, the business must be at least two years old, and have shown a profit in at least one of those years. Further, the company must meet a test for hardship, yet still be able to service this new debt — and prove it with cash-flow projections that look two years forward.

You’d think lenders would love this sort of arrangement; because the S.B.A. will pay interest in place of the borrowers, it’s basically free money for the banks. Yet the financial community’s enthusiasm is clearly tempered. “It’s not a profitable loan for the bank,” says Paul Merski, chief economist for the Independent Community Bankers of America, a trade association.…Continue reading

Banks still trying to get out of TARP

Many banks remain stuck in the controversial program. But they will have to raise capital and post better results before they’ll be allowed to exit TARP.

A flurry of banks officially escaped the clutches of TARP after cutting checks to the U.S. government Wednesday, marking the first major payback of the billions of dollars in aid invested in banks last fall.

Still, hundreds of lenders, including industry leaders Bank of America (BAC, Fortune 500) and Citigroup (C, Fortune 500), remain under the government’s thumb, leaving many banks to cope with life inside the confines of the Treasury Department’s controversial Troubled Asset Relief Program.

Banks have been working particularly hard to break free from TARP for several months now, decrying the various restrictions that have come with government aid, including restrictions on compensation for executives and other top earners.

But regulators have conceded little, fearing that many banks may be ill-equipped to withstand another bout of economic turmoil in the months ahead. There have also been concerns that banks may scale back on lending after returning TARP funds.

Small and mid-sized lenders, many of whom were strongly encouraged by regulators to participate in the program shortly after its launch last fall,….Continue Reading

Charter Capital, Phoenix Financial Form Joint Venture

California-based Charter Capital has formed of a joint venture with Arizona’s Phoenix Financial Equipment Leasing to provide small- to mid-sized businesses locally and nationally with a broad range of customized financial solutions for their equipment and technology acquisition needs.

At the end of June both firms will move into Charter Capital’s new quarters in Scottsdale, AZ. Charter will maintain its office in California.

“The Charter team has done everything they could to help us grow both professionally and personally,” said Nick Couturier, president of Phoenix Financial Equipment Leasing, commenting on the partnership.…Continue Reading

Small Business Economic Confidence Drops in May

After reaching its highest level in 14 months, the economic confidence among small business owners fell in May as owners reported cash flow concerns and expect to cut back on business development spending, according to the latest Discover Small Business Watch.

The monthly index dropped more than 10 points to 78.1, down from 88.5 in April.

The Watch also recorded significant drops in the numbers of small business owners who think the overall economy is getting better, and number of owners who thought economic conditions were improving for their own businesses.

“We saw cash flow problems jump this month to their highest level in two-and-a-half years, which is certainly not going to boost the optimism of a small business owner, especially in this economic climate,” said Ryan Scully, director of Discover’s business credit card. “However, for the past three months we’ve been recording our highest confidence levels since summer of 2008, so all is not lost.”

The following are highlights from the May report:

• 49% of small business owners say they have experienced temporary cash flow issues in the past 90 days, up 10 percentage points from April. That’s the highest percentage in that category since the Watch started in August 2006.

• Nearly half of small business owners, or 48%, see economic conditions for their businesses getting worse, up from 40% in April; 24% see conditions improving, down from 32% last month; and 23% say conditions are the same; 4% were not sure...Continue reading

Financing a Business Acquisition in a Recession

It is essential to understand the many options for financing.

In todays economy, securing financing to purchase a business has become a full time job, and theres no guarantee all the hard work will pay off in the end. Banks have all but disappeared from the process, leaving business buyers and sellers wondering how they can possibly get a deal done. This is in stark contrast to 2008, when loan origination fees were healthy and banks were vying for SBA-backed business loans. In fact, most of the banks our brokerage firm was dealing with in 2008 have completely abandoned these types of transactions. This leaves most business brokers, buyers and sellers competing for a shrinking number of financing options.

The governments attempt to boost bank lending to businesses is falling on deaf ears. We have seen cash levels on bank balance sheets triple over the last year, while lending has steadily declined. In addition, the SBA, which serves as a guarantor for many of these loans, has taken steps that have made this market even more erratic. The good news is thatthe stimulus billincluded new SBA plans for temporary fee reductions; guarantees increased to 90 percent for certain types of loans, deferred payment loans micro loans and several other improvements. The bad news is that the SBA, acting outside of the stimulus bill, has enacted a significant change to business acquisition loans by placing caps on goodwill financing.…Continue Reading

SBA emergency loans to start mid-June

The U.S. Small Business Administration has announced a new emergency bridge-lending program geared toward helping struggling small businesses ride out the current recession.

Calling it another “tool to our toolbox” SBA head Karen Mills said the new American Recovery Capital (ARC) program will offer “viable” small businesses temporary six-month loans of up to $35,000.

“We expect these loans to be in high demand,” said Mills, who made the announcement as part of her keynote address at the National Small Business Week conference.

“As you look around, many businesses will meet the criteria of being important, viable businesses that haven’t missed a payment yet, but their credit lines are down, their sales are down a bit and they’re having hardship and they really could use this.”….Continue reading

Emergency loans: Will banks play ball?

The Small Business Administration will soon launch an emergency loan program for businesses burdened by debt, but potential lenders want more details before they commit to participating.

The Small Business Administration plans to begin dispersing funds in mid-June for a new, highly anticipated emergency lending program, but don’t race off to the bank to fill out an application just yet. Many lenders are still sitting on the sidelines, waiting for more details from the SBA before they decide whether or not to participate.

“What is the economic incentive for banks to make these loans?” asked Arne Monson, president of Holtmeyer & Monson, a consulting firm that works with small business lenders.

That’s a question many potential participants are asking right now as they await formal guidelines from the SBA for the “America’s Recovery Capital” program. Created as part of the stimulus bill, the initiative aims to bring temporary relief to established small business suffering through the recession.…Continue Reading

Small Business Week: Financing Your Business

Eric Zarnikow, director of financial assistance for the Small Business Administration, was online to answer your questions on Thursday, May 21 at 11 a.m. ET.

Zarnikow is the Small Business Administration’s point person on issues of financing and helps execute the SBA’s mission to expand access to capital for small businesses, making it easier for them to get loans or to grow a business.…Continue reading

New Mark-To-Market Accounting Rules Boost Banks’ Equity

Banks that need to boost a form of regulatory capital are getting some help from a recent change in accounting rules.

Huntington Bancshares Inc. (HBAN) said Thursday its Tier 1 common equity would rise $100 million after it implemented a recent shift in accounting standards. Tier 1 common equity is a form of capital that bank regulators have recently emphasized in measuring banks’ financial health.

To record the gain, Huntington used a recent dictate from the Financial Accounting Standards Board that addresses the value of debt-backed investments that companies hold on their balance sheets.…Continue Reading

SBA Loan Programs Getting Back on Track, Mills Says

It’s finally happening. Efforts to get money to capital-strapped small businesses are beginning to work, as banks have returned to making loans backed by the federal government, says Karen Gordon Mills, the new Small Business Administration head.

More than 10,000 Recovery Act loans have been approved, which represents about $3 billion in credit supporting small businesses, she said in her testimony at a Senate hearing Wednesday. The hearing was about the small business provisions of the American Recovery and Reinvestment Act, which was enacted in February.

Since then, more than half of the $730 million in Recovery Act funding has been put to use to make it easier for small business owners to borrow. It’s doing this mainly by reducing fees as well as increasing the guarantee that the SBA provides lenders in case of loan defaults. Weekly loan volume in the SBA’s two most popular lending programs is up 25% to $217 million since March 16, when the funds were made available, compared to the $171 million approved in the weeks before mid-March.….Read more