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

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

Remember the 1981-1982 recession? According to a McGraw-Hill study of 600 companies covering 16 different SIC industries from 1980 through 1985, firms that maintained or increased advertising expenditures during the 1981-1982 recession averaged significantly higher sales growth, both during and after the recession. By 1985, sales of companies that were aggressive recession advertisers had risen 256% over those that didn’t keep up their advertising.

A series of six studies conducted by the research firm of Meldrum & Fewsmith showed conclusively that advertising aggressively during recessions not only increases sales but increases profits. This fact has held true for all post-World War II recessions studied by American Business Press starting in 1949.

Investing in your business during slow times is not limited to marketing. Labor is cheaper, materials are less expensive, and build outs can be completed more quickly. That prime location that was out of reach when times were good…maybe within your grasp when times are leaner.

Finally, think about personnel. Since weaker competitors can make the mistake of firing during a recession, the labor pool of good talent increases. In addition, it is easier to invest training time in new hires during slower growth periods that can translate into long term success.

There is no question that your stronger competitors are investing in their businesses during the current economic slowdown. The only question is whether you are positioning yourself to capture your piece of the market share newly up for grabs. If capital is tight, consider a business loan. The time to invest is NOW. According to the National Bureau of Economic Research, over the last 50 years, recessions in the United States have averaged only 11 months. You can’t afford to wait.

© 2008 Advance Restaurant Finance, all rights reserved