Small-business loans slow to a trickle

Tom Abate, Chronicle Staff Writer

Wednesday, May 27, 2009

Lending to small businesses had slowed even before last fall's financial meltdown, and the credit picture has probably worsened since then, according to a report from the Small Business Administration's Office of Advocacy.

The report issued Tuesday said the growth of small-business loans - those less than $1 million - had fallen to 4 percent as of June 2008, or half the rate that prevailed during 2007.

The SBA defines a small business as any firm with 500 or fewer employees. Collectively, the small-business sector accounts for about half of total U.S. employment and has created roughly 70 percent of all new jobs in recent years.

Charles Ou, co-author of the SBA report, said it's too soon to get data on lending activity since last fall. But he said anecdotal evidence suggests credit to small businesses has slowed even further, giving this economic engine less fuel to grow.

"Since last winter, it has been horrible," Ou said. "You have real, real problems out there."

The SBA report identifies banks that focus on small loans. At Oakland's Innovative Bank, one of California's top-ranked lenders, Vice President Danny Alfonso said he has cut way back on small business loans.

Alfonso said Innovative has been one of the top issuers of SBA-backed small office/home office loans with a $50,000 limit. Through June 2008, Innovative had been funding about 350 such loans per month. Now it is issuing about 70 such loans monthly, mainly because of tougher eligibility requirements, he said.

"Loans that had been paying for two to three years have started to default," he said. "We have really tightened up our credit underwriting."

At Mission National Bank in San Francisco, another top small-business lender, President Dave Joves said he is getting more demand from prospective borrowers but has kept lending steady to err on the side of caution.

"Until the economy turns, you really want to be particular about who you lend to," he said.

The National Federation of Independent Business, a lobbying group, has polled small businesses on credit issues and found that some can't get access to loans or have had their credit limits reduced by banks or credit card issuers.

But economist Bruce Phillips, with the NFIB Research Foundation, said access to credit is not the primary challenge facing small firms.

He said many business owners are reluctant to borrow because they aren't sure they can increase sales to justify the extra expense.

"They have lost faith in the economy and haven't spent much money on capital equipment because they're worried about revenues," he said.

E-mail Tom Abate at tabate@sfchronicle.com

10 reasons to use hard money

by Morgan A. Scott

Whether a conventional bank loan isn’t available to you, or whether a bank is simply not willing to loan you moneybecause of your credit history, San Diego Hard Money can prove to be extremely useful in many instances. For example, some banks will refuse to help you simply because there may be an issue with the property or collateral.

Or maybe you are unable to provide adequate documentation according to the banks standards. Maybe you have the need for a bridge loan, have specific investment projects, or need money quickly. These all may be reasons you would obtain private financing.

10. Bank is unwilling to accept your property as collateral

There are essentially a number of reasons as to why a bank may not be willing to accept a property as a source of collateral. In particular, if a property has been designed for a specific purpose, banks are often reluctant to accept them. For example, these could include buildings such as care centers for the elderly, health and spa resorts or any other building where an appraiser has rated as being below average.

9. Poor credit history

Unlike banks, private money lenders tend to focus primarily on collateral, rather than credit history.

Because private investors and lenders look heavily at the property and the amount of equity available to lien, their primary concern is the collateral and typically their secondary concern is the credit history. This is not an absolute guideline but it often happens this way.

8. Banks have stringent documentation requirements

As so many have discovered in the past, being self employed can make it incredibly difficult to get finance from a bank as you simply may not be able to fulfill the banks requirements with regards to the documentation they require.

Hard money lenders on the other hand, will often be willing to accept income tax returns or even bank statements, in order to determine whether or not your income is sufficient for being able to make repayments.

7. Loans for the purpose of Rehabilitating Distressed Properties

For anyone needing a loan for the sole purpose of renovating an existing property, there’s a strong possibility that hard money financing will be made available to you.

However, San Diego hard money lenders and investors do insist that the borrower also make a contribution, if only to establish a certain amount of involvement on the borrower’s part.

6. People who own land but lack finance for the construction of a property

Construction loans are a common use for San Diego private financing. However, in order to qualify, the owner of the land will be required to show proof of ownership, building permits, draw schedule, construction cost break down and etcetera. Providing they can meet these requirements, then in all likelihood they will be granted financing.

5. You need to make use of existing equity in order to obtain an additional property

San Diego hard money can be used to secure cash out on residential and commercial property. The typical closing time is anywhere from 7-14 days from the time a full package is received.

4. You have financed multiple properties but you wish to acquire additional properties with financing.

Unfortunately banks all too often decline loan applications to investors if they already have too many open loans. Of course, in this type of situation, hard money may be the only option available.

As long as the investor can show the ability to repay future obligations with current debts they will have opportunity through private channels.

3. You need to make an offer to acquire real estate but the terms of escrow are limited and short

Unlike banks, where loan applications can take ages to process, private lenders are for the most part able to make decisions in a fraction of the time banks take.

2. You need a bridge loan.

There could be various reasons that you need a bridge loan. Those might include a loan that is getting ready to adjust or balloon, temporary cash flow challenges in a business, or maybe you need to leverage so that you can fulfill some aspect of a real estate project.

1. Time is of the essence

When time is in short supply and financing is required in a hurry, San Diego hard money can usually ensure funds are available to you within seven to fourteen days. Of course, as many will agree, this is often the chief advantage.

No Income Check Loans. Prequal in minutes

Hard Money is not so hard, Prequal in minutes

Happy Memorial Day