As our country emerges from this catastrophic event called “coronavirus” what does the environment to obtain capital look like. We are hearing all kinds of “New Policy” conversations from banks and from private lenders. I have been told by several banks that they have a moratorium on any new commercial loans for at least 90 days. We have seen first-hand banks decide not to close a loan that was ready to close and previously cleared to close.
Certainly, we are now living in a new environment. Our largest go to lender in the SBA 7a program who specialized in new business startup financing has decided to not fund any new startup businesses for the next 12 months and focus all their energy on refinancing existing commercial loans. This will be a devasting event for prospective new businesses. They will now be forced to delay starting the business or go the private funding route that will cost them higher fees and interest as well as potential costing them a part of their new company.
So why would a very successful 7a lender that focused on new business startups change course? Simple. They know that most banks in the United States are about to go to a strict tightening of their lending policies. These banks are going to sit on their hands and wait and see how the country recovers from this before lending any funds to refinance commercial properties and certainly they are going to run away from new business startups – usually the highest risk of any commercial loan.
So, you can see why a lender that normally specializes in the SBA’s 7a new business lending would change course. They believe the opportunities to refinance existing businesses is going to soar as those business owners struggle to get their current bank or any bank in their community to lend money prior to seeing how all of this shakes out. Credit worthiness will not matter. The fact that the business owner has been with their bank for years, will not matter. Want proof? Look at the PPP loan program. How many small business owners struggled to get their bank to help them with their loan?
I can tell you here at ACS, we have processed and been able to secure funding for over 320 business owners. Most of these clients came to us because either their bank did not want to process the PPP loans and they sent the customers to us or the business owner could not get their current bank to work with them and get them the PPP loan.
Several banks in our area refused to fund the entire lending amount that the business owner was entitled to. Instead, the banks chose to fund only 75-80% of the loan entitlement amount so that when the forgiveness period comes around, they would not have anything left on the loan balance. Talk about kicking us when we are down….and here is the best part. Those banks chose not to tell their clients they were holding back funding until after the bank secured an SBA number – so they client couldn’t go anywhere else to get the loan. One SBA number per business owner.
Just to be clear, I am not blaming the banks that did that. There were no clear instructions on how the remaining balances would be treated by the FED and what the costs were going to be. With the loans only carrying an interest rate of 1%, and the banks having to borrow the funds from the Home Loan Banks at .35%, there is simply not enough margin for those banks to carry those loans.
Never forget that banks are in business to make a profit. So, you can understand when they are nervous or really unsure of the direction of the economy, they natural instinct is to pull back. Unfortunately, that is exactly when business owners need more access to capital and not less.
So, what is a business owner going to do. Well one thing is the business owner better have a great supporting cast around them. Who is looking at cash flows and future earnings? Who is looking at staffing and making sure the company is right sized between income, personnel and current debt? We have companies that we have been helping navigate the entrepreneurial waters for years.
As a business owner, you need quality people around you that can listen to your thoughts and your ideas but who are not afraid to not recommend something or at least say “why don’t we give this a few months to marinate.” We have a business coach of our own who has been working with us for four years now. He still brings out notes that he took when he first started meeting with us. He is an important asset to our team.
The bottom line……getting access to money is going to get a lot tougher and business owners are going to need sources who know he might still be lending out there. The access to capital is about to be a business owners’ number one focus in these trying times we are facing. Find some sources that can get you access to capital and then hold on to them.
Lastly, during the funding of those 320 PPP loans, we had a business owner that was about to miss his payroll. His PPP funds were coming but were going to miss his payroll by 2 days. We believe in this business owner and enjoyed working with him, so we made the decision as a company to loan him the funds he needed to cover his payroll at no cost to him. He covered his payroll and sent us our money back the day his PPP funds hit his account. Always remember that relationships matter.