What is Your True Credit Score
When making a lending decision, lenders only use credit scores provided by a limited number of organizations. The most widely used score is your 3 digit FICO score calculated (and owned) by a company called Fair, Isaacs (the 5 categories that make up your FICO score are discussed later in this blog). The 3 national credit reporting agencies – Experian, TransUnion, and Equifax – in addition to providing your credit report will also provide a 3 digit credit score that each calculates using its own proprietary formula.

Virtually every lender in the US only uses your FICO score or one or more of the scores provided by the 3 national credit reporting agencies when making a credit decision. Lenders may make a credit card or auto loan decision based on a single credit score, while others such as mortgage lenders often will look at multiple scores. Not surprisingly, each of these scores – since they are calculated using different formulas – will vary somewhat. Also not surprisingly, since lenders pay for the right to access these scores, none of the organizations that own these scores will give them away for free…even to you.

What about the Free Scores
The free scores you see advertised are simply estimates of your general credit worthiness and are different from the credit scores lenders actually use, although they may appear similar. Consumer reporting agencies and other companies sometimes use an estimated score to illustrate a consumer’s general level of credit risk. How can you tell whether a score is estimated? Ask the company if the score is used by most lenders. If it’s not, it’s likely to be an estimated score.

Why do Fair, Issacs and the 3 national credit reporting companies charge you for their credit scores while other companies give you theirs for free? Basically, 2 reasons.

First, Fair, Issacs and the other companies charge for their credit scores because they can. Lenders find those scores useful in making credit decisions, so they will pay for them. On the other hand, lenders do not find the other estimated scores valuable and will not pay for them.

The other reason, of course, is because most, if not all of these other companies are actually trying to sell you credit monitoring services for anywhere from $8.95 to $14.95 per month. The “free credit score” is their hook to get you on their site and get your credit card information.

Don’t be fooled. If you want to see the credit score that lenders use to make credit decisions about you, go to one of the 4 companies that provide those scores and pay the $14.95 or so it costs to get it. For example, at www.myfico.com, you can get your FICO score for $14.95.

The 5 Parts of your FICO Score
These are the 5 general categories that make up your FICO score.

1. Your payment history is about 35% of your FICO score – if you pay your bills on time, this improves your score and, if not, it hurts your score.

2. How much you owe is about 30% of your FICO score – FICO scores are calculated in part based on the amounts you owe on all your accounts, the number of accounts with balances, and how much of your available credit you are using. The more you owe compared to your credit limit, the lower your score will be.

3. Length of your credit history is about 15% of your score – generally a longer credit history increases your score, but a short history can get a high score if it shows good credit management.

4. New credit is about 10% of your score – If you have recently applied for or opened new credit accounts, your credit score will weigh this fact against the rest of your credit history. If you need a loan, do your rate shopping within a focused period of time, such as 30 days, to avoid lowering your FICO score.

5. Other factors are about 10% of your score – Several minor factors also can influence your score. For example, having a mix of credit types on your credit report is normal for people with longer credit histories and can add slightly to their scores.

Want a Free Copy of your Credit File?
Go to www.annualcreditreport.com. This site, set up by the government, allows you to request a free credit report, once every 12 months from each of the 3 national consumer credit reporting companies: Equifax, Experian and TransUnion. But remember, you can get your credit file for free, but not your credit “score.” That will still cost you.

If you are a restaurateur who wants to increase sales, enhance marketing, make capital expenditures, or otherwise invest in your business and are looking for a restaurant loan, try Advance Restaurant Finance, LLC (ARF). ARF has been making short term business loans to restaurants for almost a decade. Despite the economy, ARF never stopped making business loans to restaurants, and ARF makes restaurant loans up to $1,000,000 per location. If you are looking for a restaurant loan, ARF is one the first call you should make. ARF is a lender you can trust, and our team of experienced hospitality specialists provides straightforward funding solutions with a streamlined funding process, professionally and personally.

Is the “Shadow Banking System” to Blame?
One potential cause is the contraction of the “shadow banking system.” Non banking entities, such as insurance companies, money market funds, and institutional investors that supplied credit to large corporations have pulled out of the market. That has caused corporations to look to banks to supply credit, and “bank capital isn’t big enough to fill in for the lack of supply,” said Rick Spitler, managing director at the New York City-based consultancy Novantas, which focuses on financial institutions. Why You Can’t Get a Loan, CNNMoney.com (February 17, 2009).

Is it Really the Banks?
Banks claim they are making business loans, but many say they are also trying to manage risk in the current credit climate. Or as Wells Fargo explains, “[a]ll our lending decisions are based on doing what is best for our customers, our company and investors.” Why You Can’t Get a Loan, CNNMoney.com. Wells Fargo is not alone. Many banks are doing what they have always done during tough economic times – pulling back on all types of lending and trying to hold onto capital to help safeguard against further loan losses.

So who is an ideal candidate to borrow nowadays? “Someone who doesn’t need any money,” said Charles Wendel, who runs a Connecticut-based strategic consulting firm that advises banks.

Some things never change.

Are You Looking for Funding in the Right Place?
While not exactly a “shadow banking system,” alternatives for business loans and restaurant loans do exist. One such alternative is Advance Restaurant Finance, LLC. (ARF). ARF is a licensed lender that has been making restaurant loans and business loans to the hospitality industry for almost a decade. With business loans and restaurant loans up to $1,000,000 per location available, more and more hospitality merchants are turning to ARF if their banks turn them down. You may want to expand your universe of options when seeking funding.

If you can’t get a business loan, don’t think you are the only one. According to CNNMoney.com:

• Chris, a vice president at a Kansas City-based retailer with more than 500 employees says his business is now struggling to find a lender after Bank of America pulled its credit line.
• Another small business owner who operates a homebuilding firm just outside of Savannah, Ga., said his company was denied financing by five different lenders, including regional giant SunTrust, for a loan to purchase a 1.6-acre piece of property.

Call an alternative lender and explore your options. Money is out there. Sometimes you just have to know where to look.

© 2009 Advance Restaurant Finance, all rights reserved

Banks are making fewer and fewer SBA Loans every day. SBA loan volume for August and September fell more than 50% from a year earlier and is on pace to decline in October, as well. American Banker, Pullback in Secondary Market Hits SBA Lenders (October 30, 2008). But this time, banks are not the culprits, but rather the victims of the deteriorating secondary market for government small business loans.

Banks can’t “resell” SBA loans for a profit
Some banks hold and service the SBA loans they make, but the majority of banks package the loans and sell them to investors in the secondary market. The problem is the difference or spread between the cost of the investors’ funds and the interest rate paid on SBA loans. Since SBA loans are backed by the federal government, the interest rates are tied to the Prime Rate and lower than rates on non government backed small business loans. The money investors borrow to buy SBA loans is typically tied to the London Interbank Rate or LIBOR. After the Fed Reserve’s latest rate cut, LIBOR was around 3.5% and the Prime Rate fell to 4%.

When these two key rates are this close, there is just not enough margin or profit to entice a sufficient number of buyers into the market. Likewise, the profit margin for banks seeking to sell these government backed small business loans in the secondary market – if they can find buyers – is insufficient to entice them to make SBA Loans. For small businesses this means far fewer SBA loans are available.

According to James Hughes, President and CEO of Unity Bancorp, “There’s virtually no market left for SBA loans.” Unity, which aggressively expanded its SBA loan program a year ago, recently shut down 8 SBA loan offices in 7 states and laid off 10 of its 12 SBA lenders. Pullback in Secondary Market Hits SBA Lenders (October 30, 2008).

Small Business Owners need to “Think Outside the Bank”
With a vital source of small business financing becoming increasingly unavailable to small business owners, where can a typical small business go for expansion, inventory, or even working capital loans? One potential solution – “Think Outside the Bank.” More and more small business owners are turning to alternative lending institutions for their business financing needs.

Alternative lending institutions are typically private, licensed lenders that don’t take deposits, but do make business loans. These alternative lending institutions may focus on a few industries that they know very well. This allows them to tailor an underwriting model specifically for an industry or set of industries that can be more flexible than a typical banks’ underwriting model.

One such alternative lending institution is Advance Restaurant Finance, LLC (ARF). ARF has been loaning money to small businesses for almost a decade. It has developed expertise in the hospitality industry and routinely makes business loans from $5,000 to $1,000,000 to restaurants, bars, hotels, and night clubs. ARF’s extensive experience in the hospitality industry allows it to make loans to businesses that banks won’t.

With traditional sources of small business financing drying up, a smart business operator should “think outside the bank” and consider establishing a relationship with an alternative lending institution. It never hurts to have options.

© 2008 Advance Restaurant Finance, all rights reserved

]]> http://www.advancerestaurantfinance.com/blog/credit/small-business-owners-suffer-as-deteriorating-secondary-market-hits-sba-lenders.html/feed 0 http://www.advancerestaurantfinance.com/blog/credit/the-credit-crunch-is-squeezing-the-good-businesses-along-with-the-bad.html http://www.advancerestaurantfinance.com/blog/credit/the-credit-crunch-is-squeezing-the-good-businesses-along-with-the-bad.html#comments Mon, 06 Oct 2008 19:10:27 +0000 admin http://www.advancerestaurantfinance.com/blog/?p=13 We all know a Credit Crunch is upon us. Unfortunately, the shortage of available credit has spread from marginal businesses to encompass established, profitable businesses as well. In September, business owner Drew Greenblatt asked for a $175,000 increase to his line of credit for his thriving wire products business. The bank declined to do it unless he put an equal sum into a certificate of deposit. (Credit Crunch Puts Squeeze on Businesses, Business Week, Oct. 5, 2008.)

In Ohio, banks are refusing to renew lines of credit and calling in loans made to decades old family businesses that are current on payments. According to one local workout attorney, “It’s not just sick businesses. These are healthy businesses.” (The Credit Crunch and Small Business, Business Week, Sept. 26, 2008.)

Not surprisingly, according to the Federal Reserve’s July survey of senior loan officers, 65% of banks have tightened credit for small businesses.

David Glass, President of Business Credit Services, an 8 year old Las Vegas firm that helps business owners obtain credit, complained that they “used to have little trouble getting $50,000 credit lines for new business owners with 640 FICO scores. Now banks want to see scores of 720 and companies at least 2 or 3 years old.” In addition, he “had 50 or 60 banks [they] could send people to with the basic $50,000 or $100,000 credit line. Now there are maybe 5 or 6.” (The Credit Crunch and Small Business, Business Week, Sept. 26, 2008.)

No doubt working capital loans and unsecured small business loans are becoming harder and harder to get. At some point, most businesses will need a working capital loan or an unsecured small business loan. What should a successful small business owner do to protect his or her business? Here are 2 ideas steps you can take.

First, establish a relationship with a nontraditional lender. Banks and credit unions are not the only lending institutions out there. Research other lending sources and establish a relationship with one or more. Next, once you find an alternative lender, put a working capital loan or line of credit in place. Once you have an unsecured small business loan commitment or line of credit in place, you can turn your attention back to running your business, knowing you have a ready source of funds available.

Advance Restaurant Finance, LLC (ARF) is a licensed lender that specializes in restaurant funding solutions, restaurant loans, and other working capital loan solutions. Among other products, ARF has an unsecured small business loan line of credit with no application, maintenance, or access fees. Call ARF at 866 702 4430 or apply online today and get the working capital to help your business grow.

© 2008 Advance Restaurant Finance, all rights reserved

Small business owners know that business loans are hard to get these days. You are not alone. Now comes news that banks won’t lend to each other (Lending Between Banks Seizes Up, Wall Street Journal, Sept 17, 2008). Certainly, when behemoths such as Lehmann Brothers can’t get loans, and the government has to step in to loan money to AIG, credit is tight. But when a bank won’t make a loan to another bank, who is going to make business loans to small business?

A bank? They are not even loaning money to each other. The Government? Well, you’re not AIG, so I’m not sure you can count on government small business loans. How do small business owners protect themselves during these uncertain economic times? You most likely have taken some positive steps, such as cutting expenses and protecting your core business, but what about money?

Maybe you don’t need money today, but even the best run businesses can face unexpected disruptions or unforeseen difficulties. Even if you don’t need a business loan right now, wouldn’t it be smart to make sure you had money available if you did need it. You may want to consider a Line of Credit.

A good Line of Credit has many attributes, including:

• Quick Access to Funds
• Easy Application Process
• No Access Fees
• No Maintenance Fees, and
• No Application Fees

If you can find a lender to extend a Line of Credit to you, it can be better than a business loan. With business loans you begin paying interest immediately on the entire amount. With a Line of Credit, you only pay interest on the money you use, and then only if you draw on the line. Once you have a Line of Credit in place, it’s one less thing on your mind. Now you can handle business contingencies without concerning yourself if your local bank is going to give you a business loan quickly when you need it.

With banks hesitant to loan to other banks, you may want to research alternative lending institutions, such as Advance Restaurant Finance, LLC (ARF). ARF has been loaning money to restaurants and other small businesses for almost a decade. In addition to mezzanine business loans, ARF provides other innovative financing solutions, such as Lines of Credit and Interest Only Business Loans. Best of all, 95% of ARF’s loans are unsecured small business loans.

ARF has a simple application process, requires very little documentation, provides answers within a few business days, and can fund within 5-7 business days. ARF also loans up to $1,000,000 and in some instances, more. Don’t gamble with your business and don’t gamble on what a bank may do, call ARF and put a Line of Credit in place today.

© 2008 Advance Restaurant Finance, all rights reserved

Project Financing
Many borrowers look for money to finish a build out, expand, or increase marketing. In this situation, you may not expect to generate increased revenues initially. But once the expansion is complete or the marketing gains traction, you do expect revenues to increase. Instead of carrying the financing costs equally over the term of a business loan, you may be better off using interest only financing.

You will likely appreciate the lower, interest only payments while you finish out your new location or launch your marketing programs. By the time the principal is due, the locations are open or the marketing is generating new business, providing additional cash flow to repay the business loans.

Bridge Financing
Other borrowers may use interest only loans as bridge financing. These operators may have permanent financing in the works, but with approval times increasing, the interest only money is used to keep projects on track while the borrower navigates the permanent financing maze. Once the permanent financing comes through, the business owner pays off the principal on the interest only business loans.

Alternative Lenders Filling the Gap
While the newspapers and talking heads continually obsess about the credit crunch, tightening lending standards, and lack of creative financing options, many companies are quietly expanding their funding offerings. Advance Restaurant Finance, LLC (ARF), is one such lender that has added interest only business loans to its portfolio of financial solutions.

ARF’s interest only loans typically range from $100,000 to $1,000,000. Each loan has an interest only period of 6 months. At 6 months, the borrower can pay off all, some, or none of the principal. Any unpaid principal can be rolled into a regular amortizing business loan at rates previously locked in.

Another unique feature of ARF’s interest only loan is the collateral. ARF doesn’t require any. These are unsecured small business loans, guaranteed only by the borrower. In addition, these loans are low documentation and quick to fund. Approvals can be had in as little as 2 business days with funding occurring as quickly as 48 hours later.

© 2008 Advance Restaurant Finance, all rights reserved

Banks are bailing on the SBA’s 7(a) loan program
Banks are bailing on the Small Business Administration’s government backed 7(a) loan program. For Q1 2008, volume for 7(a) loans was down about 20%. For rural entrepreneurs it was worse – down almost 30%. Business Week, The Squeeze is On, June/July (2008).

Why? One reason is bank participation. Bank of America – the leading 7(a) lender in 2007 – made 44% less loans in Q1 2008. Capital One Financial – the number three lender in 2007 – made less than half the number of loans it normally would over the same period. Adding to the problem, almost 400 banks have left the program in the last 2 years.

Processing times and credit requirements increase
With banks loaning less, one would think that processing times for these government backed loans would decrease, as well. Unfortunately, the opposite is true. Take the experience of Wendy Kobler of Huntsville, Alabama. Although “advertised” loan review time was 72 hours, actual review time was two weeks. Then, the loan officer scrutinized three years’ worth of her personal and business finances and asked a lot of questions about her net worth, including the value of her home. “The loan officer was looking at anything he felt could pay back the loan,” she said. (Business Week, The Squeeze is On). Her experience is not unusual. According to the Federal Reserve, in April of this year, 55% of domestic banks reported tightening credit standards for commercial loans, up from 30% in January.

With a key government-backed loan program designed to kick in during an economic downturn on the ropes, business owners need options when seeking $50,000, $250,000 or more to grow their businesses. Luckily, the private sector provides alternatives.

Alternatives to the SBA 7(a) loan program
Private lenders, such as Advance Restaurant Finance, LLC stand ready to fill the void left when banks stop lending through the SBA’s government backed loan programs. In addition, unlike the time consuming, document intensive government backed loan process, ARF’s loan process is streamlined and quick.

After ARF’s underwriters review a few key documents, such as bank statements, a typical applicant will have an answer in 72 hours or less. Once approved, ARF’s borrowers usually have the money in 5-7 days. From $5,000 to $1,000,000, restaurateurs and other retailers are increasingly turning to ARF for their business loan needs. Loaning money since 2001, ARF has helped tens of thousands of borrowers who either have been turned down by their banks or who are simply weary of the government backed loan process. In addition, more than 95% of the loans ARF makes are unsecured, requiring no collateral.

© 2008 Advance Restaurant Finance, all rights reserved

No matter how well you run your business, regardless of the previous relationship you have established with your bank, the time may come when you need cash fast and your traditional sources of funding are no longer available. That is why every business needs a back up plan. Smart business people across the nation are establishing lines of credit well before the need arises…just in case. Many are also looking at alternative sources of funding because their traditional sources are tightening their credit standards, raising their rates and in many cases, denying previously extended credit.

Take the case of Doug Eddings, a 35 year old small business owner in Portland, Oregon. Three of his previously reliable financing sources “all took steps in recent weeks to tighten his credit, either by raising his interest rate, halving his available credit or freezing his accounts.” Credit Crunch Moves Beyond Mortgages (WSJ, Aug 22, 2007). According to Mr. Eddings, when he called to inquire, “they didn’t have an answer for [him], but said it was something in [his] credit file.”

Don’t let the Credit Crunch catch you flat footed. Consider putting a line of credit in place today before the need arises. Business loan providers such as Advance Restaurant Finance, LLC who specialize in the restaurant industry, provide lines of credit to restaurateurs every day, with no application, maintenance, or access fees. Why wait? Establish a line of credit today.

© 2008 Advance Restaurant Finance, all rights reserved