Enlign

New ENLIGN eNews Available

NEW ENLIGN eNEWSLETTER

and subscribe HERE

Obama looks to give $15B boost to small businesses

Monday, March 16, 2009, 3:08pm EDT

Triangle Business Journal - by Kent Hoover Washington Bureau Chief

The Treasury Department will purchase up to $15 billion in securities backed by Small Business Administration loans in an effort to unfreeze the secondary market for SBA loans.

This should increase SBA lending to small businesses by enabling lenders to sell their existing loans on the secondary market, according to the White House. This will free up capital to make new loans.

The new SBA secondary market initiative was announced Monday by President Barack Obama as part of a larger effort to boost SBA lending. Lending through SBA’s flagship 7(a) business loan program is down 58 percent this fiscal year compared with the same period last year. Lending through the 504 program, which primarily finances real estate, is down 47 percent.

Small businesses are “not only job generators, but the heart of the American dream,” Obama said. Today, however, “too many entrepreneurs can’t access the capital” they need to start or grow their businesses.

“Less lending leads to fewer jobs and lower spending, which leads to less lending, a vicious cycle that delays recovery,” Obama said.

Besides the new secondary market purchases, Obama also announced plans for implementing the SBA-related provisions included in the economic stimulus bill. Beginning Monday, the SBA will guarantee up to 90 percent of each 7(a) loan made by private-sector lenders, an increase from the normal 75 percent to 85 percent guarantee. This higher guarantee will encourage lenders to make more SBA loans, because they will have more protection against possible loan losses, according to the Obama administration.

Upfront fees on 7(a) loans that lenders pass along to borrowers also will be temporarily eliminated, as will fees on 504 loans. Borrowers or lenders who were charged any of these fees since Feb. 17 -- the day the economic stimulus bill was signed -- will receive a refund.

The new initiatives will help community banks make more SBA loans, said Cynthia Blankenship, vice chairman of Bank of the West in Grapevine, Texas.

“This is an incredible tool for community banks nationwide to help jump start the economy and the credit markets,” Blankenship said.

Because of the frozen secondary market for SBA loans, her bank has been holding $11 million of these loans on its books. These loans now can be sold, freeing up money to make new loans.

Marco Lentini, who used an SBA loan to start his Gia’Pronto organic food restaurant six years ago, said the elimination of SBA loan fees and other measures in the stimulus bill, will help him keep expanding.

Treasury Secretary Timothy Geithner called on all banks, not just SBA lenders, to increase their lending to small businesses. The administration will require the 21 largest banks who have received government funds through the economic rescue package to report how much small business lending they do every month. All banks will have to report their total lending to small businesses every quarter, instead of just once a year.

“We need every bank in the country to do everything in their power to provide the credit that small businesses need to operate, expand and add jobs,” Geithner said. “You need to make the extra effort to make sure that good loans are getting to creditworthy small businesses in order to serve the larger public good of moving this nation towards recovery. And given the role many banks played in causing this crisis, you bear a special responsibility for helping America get out of it.”

The chair of the House Small Business Committee praised Obama for acting quickly to implement the SBA loan changes included in the economic stimulus legislation.

“His efforts send a clear message to entrepreneurs around the country: You are central to our economic recovery strategy,” said Rep. Nydia Velazquez, D-N.Y.

“The ability to secure a loan at affordable terms often makes the difference between whether a small firm stays afloat, grows and create jobs, or shuts it doors,” Velazquez said. “The policies put forth today will go a long way toward addressing the credit shortage that small firms face.”

Acting SBA Administrator Daryl Hairston said the agency agrees with Obama that “we owe it to America’s small businesses to be the partner they need in the midst of this crisis.”

“We hope small businesses will take the opportunity to ask their banks about the SBA loans that might be available to them,” Hairston said. “And we encourage community banks and other lenders to work with us to reach as many qualified borrowers as we can during these difficult times.”

Given the weak state of the economy, however, it is not clear how many small businesses want to borrow money at this time. A survey of small business owners conducted last month for Discover Financial Services found that 23 percent said they would be very likely to apply for an SBA loan if they became easier to get. Another 17 percent said it was somewhat likely they would apply for an SBA loan.

The survey found, however, that 90 percent of small businesses had never applied for an SBA loan.

SBA delays limit on goodwill financing

Thankfully the Small Business Administration (SBA) has delayed the guidance recently issued set to go into effect March 1st, 2009.

 

Jeff Snell, Principal Broker with ENLIGN Business Brokers in Raleigh, NC along with hundreds of other business brokers, lenders, and loan packagers communicated with the panel expressing thier views against the limitation of SBA 7a program (the loan guarantee program most banks use to additionally secure loans for small business operations and acuisitions) towards goodwill.  Goodwill is the portion of a business purchase not allocated to hard assets such as office equipment, vehicles, furniture, etc.  Commercial property is usually guaranteed under a different SBA program. Typically, the more successful a business is financially the higher percentage and amount of goodwill it is valued.  Similarly, businesses with lean balance sheets such as service and retail businesses have a higher amount and percent of value.  This translates by definition that if inacted the guideline would effectively stop the flow of funds to transactions of the most successful businesses.

 

The business brokerage community and lending community hope that this delay will allow time for further review and subsequently dropping the goodwill limitation.  The SBA is in a unique place and time able to make meaningful, measurable, and positive steps in parallel with the current administrations stimulus objectives.  Now is NOT the time for liquidity tightening for small business loans.

 

The below article from the Washington Business Journal provides additional detail.

 

----------------------

Monday, March 2, 2009, 10:29am EST  |  Modified: Monday, March 2, 2009, 10:36am

Washington Business Journal - by Kent Hoover Washington Bureau Chief

• Print
• Email
• Reprints
• RSS Feeds
• Add to Del.icio.us
• Digg This
• Comments

Related News

• SBA delays limit on goodwill financing

The Small Business Administration delayed implementation of a new $250,000 limit on the amount of goodwill that can be financed by 7(a) loans in a business acquisition.

The new limit was scheduled to go into effect March 1, but the SBA responded to concerns raised by business brokers and lenders, who contended the rule would make it impossible to use government-guaranteed 7(a) loans to buy many businesses, particularly service businesses or professional practices.

Goodwill includes the intangible assets of a business that create cash flow but do not have a book value. Hard assets such as real estate or equipment are not included in goodwill.

On Feb. 6, the SBA advised lenders that, in cases of business acquisitions, no more than 50 percent of a 7(a) loan should be used to finance goodwill. In no case should goodwill account for more than $250,000 of the loan amount, according to the SBA’s guidance.

Because of the uproar over this limit, the SBA decided late Feb. 27 not to implement it until at least Aug. 31. Until then, the agency will review requests to exceed the $250,000 goodwill limit on a case-by-case basis.

The agency will analyze the types of businesses and transaction structures submitted in these applications to decide what limits should be placed in the future. The SBA currently does not have data on the amount of goodwill financed by its past business acquisition loans.

Jeff Snell, Principal Broker with ENLIGN Business Brokers based in Raleigh, NC quoted in Silicon Valley / San Jose Business Journal

Wednesday, February 18, 2009, 6:19am PST  |  Modified: Wednesday, February 18, 2009, 7:51am

Readers back pay cap for bailed out CEOs

Silicon Valley / San Jose Business Journal

Overwhelming support was voiced in the most recent Business Pulse Survey for limiting CEO pay at companies that get federal bailout money.

More than 80 percent of those who took the Silicon Valley/San Jose Business Journal online poll said there should be a cap on chief executive pay if their company gets federal money. The poll was conducted between Feb. 10 and Feb. 17.

"I believe that the 'retired' CEO from Wachovia walked away with about $16 million for his efforts," wrote reader Josh Gedney. "What was his last effort? He bought a bank in California which was awash with bad loans. Nice move. Cap the salaries on these people so as to semi ensure that that don't count themselves first instead of the shareholders.Whatever happened to doing a good job instead of figuring out how to make the most money for themselves?"

Carole Gilbert agreed: "Think of it this way, when your children are still on the dole, they have to live with your rules. Well, some companies are on the dole, so that's the way it is. As far as the boards harnessing salaries and bonuses, that just doesn't work. One hand washes the other amongst various board members. You give me what my company wants; I'll give you what yours wants. To hell with the shareholders."

Rick Holshevnikoff said it should be a take it or leave policy: "Yes they should, or fire them which would also be justified. I wish I could do a crappy job and get paid millions of dollars. In our world, when we don't do a very good job, we get fired. We don't get a bonus. It is sad we even have to ask this question."

Jeff Snell was one of the few readers who disagreed: "These companies are in trouble and need the best executive talent to turn them around. Why would the best executive talent on the world stage (which make and deserve seven-figure packages) take a 50 percent or more pay cut to help save a troubled bank (or any business)? This isn't about rewarding those responsible for causing the problems. It's about compensating those tasked with fixing it appropriately. To get the best you have to pay for the best.

"Obama has simply done what great leaders all do which is to create a common enemy that you and me can love to hate – in this case men and women who make more money than most of us do," Snell wrote. "The sad fact is he’s only hurting the companies that need leadership and the country as a result."

Five ways to be a Better Negotiator

The below clip was taken from www.emediausa.com and is written with corporate purchasing agents as the intended audience.  I found it to be relevant to the process of purchasing a business as well.

The point I would add, which is touched on below, and that I often share with prospective buyers when drafting a letter of intent to purchase a business is that you (the buyer) can negotiate anything, but you can't negotiate everything.

What this means specific to business acquisition LOI's is that you can offer less than the asking price, you can request a large percentage of owner financing, you can propose a below market interest rate, you can discount inventory, you can include cash and receivables, but you can't expect to get everything in the LOI when you've rounded the corners off every single deal term in the buyers favor.

I advise prospective business buyers to determine the most important term sheet items and focus on those (usually no more than 1 or 2).  Smaller points should be conceeded to the seller as a good will gesture.  Same is true from the sellers position. 

As one would expect price is usually at the top of both parties list.  This is where an intermediary can be of great value.  Typically a business broker, attorney, and occassionally accountant.  It's important that this individual be as independant and unbaised as possible.  Business transactions are hard enough.  Family members, business associates/attorneys/accountants without significant business transaction experience,  can lead to irreparable disagreements between buyer and seller.

----------

Once you've chosen a supplier for a major business purchase, it's time to negotiate the details: price, features, extras, and additional services. Of course the specifics change from one type of purchase to another, but there are some tried-and-true approaches to negotiating you should always keep in mind.

1. Negotiate "with" not "at"

Some people who claim to be great negotiators head to the bargaining table like a gladiator entering the arena: ready for battle. This forceful approach can occasionally result in short-term savings, but in the long run, you're generally better off negotiating a price that makes both parties happy.

A supplier who enjoys working with you is more likely to give you better deals on subsequent projects or purchases. Providers who feel like they've been bullied into a bad deal aren't likely to work with you in the future, and if they do, you aren't likely to get any concessions.

2. Ask for more than you expect

It can be difficult to ask for better deals than you think are realistic, but it's a basic tenet of negotiation. If you name the amount you actually want to pay as a starting point, you've given yourself no room to increase the figure in response to the seller's position. Don't be afraid to ask for the moon, knowing you're not likely to get it.

On the other hand, don't go overboard: you're not haggling over figs in a market square. Asking for a 10% discount is reasonable, but 50% probably isn't. Be realistic and the supplier will be, too.

3. Keep your perspective

Don't get too concerned with small differences. If you're spending $5,000, a difference of $100 isn't worth going back and forth about. Some negotiators get too focused on "winning" by getting exactly the result they wanted, when a very small concession would smooth the negotiation considerably.

4. Understand the total price

You can't be a great negotiator without considering the whole picture. The bottom line price for your initial purchase is just one aspect of most major business purchases: extras like installation, training, maintenance, support, configuration, delivery, and consumables often account for more total costs in the long run.

Would you like to receive BuyerZone's The Real Deal?

willingness to be flexible can help the supplier be creative in what they offer, as well.

5. Don't make price your only concern

The more central the purchase is to your business, the more you should step back and consider that long-term impact. Will saving $1,000 on a phone system matter five years from now? Probably not. Getting on the good side of a phone vendor could be beneficial for your business, though.

It’s usually worth a few dollars extra to ensure a strong ongoing relationship with suppliers. Unless you're buying raw materials or commodities, buying strictly on price is hardly ever a good business decision. While negotiating good prices is essential to getting a good deal, it's just one step in the overall process of becoming a better business buyer.