United Bank & Trust Blog

The country is nearly six months into health-care reform with the new law President Obama signed, called the Patient Protection and Affordable Care Act (PPACA).

No matter your political affiliation, you may be asking yourself – what does this mean to our community?  What are the effects on the health care providers, the leadership teams that manage the health care organizations and on the business community, all of which are faced with changing resources?

We have assembled an exciting panel of key players in the Washtenaw County Health Systems who will address these questions and provide a place for business leaders to discuss these challenges with the health care professionals on September 17, 2010.

For details of the event, the panelists and for registration, please go to:  http://businessofhealthcare.eventbrite.com/

In the recent Wall Street Journal article Collateral Damage in Lending, they discussed several items that we feel are great opportunities to clarify for potential borrowers.

Lack of Collateral

A lack of collateral shouldn’t be a reason to deny a loan under the Small Business Administration (SBA) program. The SBA does allow for the approval of loans that are under collateralized, however, all other assets of the borrower/guarantor, shy of working capital reserves and retirement accounts, are required. This includes all business assets (potentially including accounts receivable, inventory etc. if not tied to an operating line of credit) potential stock portfolios, personal residences as well as other real estate investments to name a few.

Cash Flow

We agree with the bankers in the article – cash flow is still the primary source of repayment and the most convincing way to underwrite a transaction. However, some loans won’t cash flow under conventional terms and this is where the SBA can be of assistance. The ability to amortize furniture, fixture, equipment, working capital and goodwill over 10 years and real estate over 25 years can drastically increase the cash flow position of a company making it more palatable for a lender.

Personal Guaranty

For a small business, especially a start up, a personal guaranty and the willingness of a borrower to offer one is very important. We, as a financial institution, are a lender and not an investor. We want to see that the individuals involved believe in their business and are willing to pledge their personal assets as a sign of confidence. In addition, our return (our interest rate) is priced similarly to any other conventional lender and not an investor.

We don’t get any of the rewards – for more information we have two webinars completed this year on small business lending in today’s economy and Cash is King: How to Manage Cash Flow & Increase Working Capital where we discuss this in greater detail.

In addition the SBA rightfully requires a personal guaranty on any individuals that own 20% or more ownership.

Cash and Cash as Collateral

Typically our SBA loan structure is SAFER for the client and the bank compared to a conventional loan.

Because our LTV’s can be higher, this reduces the amount of cash the client has to put into the deal allowing clients to preserve precious working capital, which they all desperately need!

Cash is usually only taken as collateral during construction- to cover cost overruns, or in rare situations when the loan is under secured AND additional collateral is available that wouldn’t’ hurt their working capital situation. We want our borrowers to have the available working capital to be able to operate their business. One of the top five reasons why businesses fail is attributed to a lack of working capital!

Accounts Receivable and Inventory as Collateral

As I mentioned above, we often will try to leave accounts receivable and inventory available as collateral for potential operating lines of credit.

Don’t hesitate to call on us with any questions, comments, or concerns at contact@unitedstructuredfinance.com. Have a great week!

Bob Chapman

I was recently in Lansing representing the Michigan Banker’s Association (MBA) supporting the Hardest Hit Homeowner fund, which has been created to help consumers who are currently receiving unemployment benefits, may have fallen behind in their mortgage payments due to unforeseen circumstances such as a medical emergency, or can no longer afford their mortgage payments as a result of reduced income. This fund is designed to invest in our neighbors, friends and relatives who are struggling to work out arrangements so that they can remain in their homes. The first-come, first-serve program is expected to help 17,000 households statewide over the next 12 to 18 months.

If you – or someone you know – is currently struggling, one of the most important things that you can do is to proactively contact your mortgage provider today to discuss options.

There are many different programs out there that have been designed to help all of us get through this economic downturn. Your banks and credit unions are here to help inform you of your options so that you can make an educated decision on what is right for you and your family.

Please be careful as there are also many companies trying to take advantage and exploit those in need so it is important that you use a trusted financial advisor, such as United, to educate yourself on your options.

For more information on the Hardest Hit Homeowner Fund you can go to http://www.michigan.gov/mshda/0,1607,7-141–235359–,00.html

Todd Clark

If you have not already, you will be hearing from your various financial institutions, including United, on new overdraft service regulations affecting your Debit or ATM card. These new regulations come from the Federal Government – and while they are changing many things about banking – we feel they are a good thing for all involved.

Why this is good for consumers:

• This regulation is forcing all financial institutions to be transparent in their overdraft services and policies. It is an exciting time when you can search a banks website and find full disclosure and transparency of their fees in this regard.
• Gives Choices! Not all clients want the same things from their checking account and this puts you in the driver’s seat of your preferences.
• An opportunity to educate yourself on the tools and services – such as balance alerts and internet banking – your financial institutions offer to avoid incurring overdraft fees in the first place.

Why this is good for financial institutions:

• This new regulation is forcing us to rethink our overdraft policies and strategies.
• Financial institutions are being forced to look for new and innovative ways to add value to your banking experience and provide you the services you need and not look to an old model.
• Being transparent to our clients is a win-win and adds trust to the relationship.

There has been a lot of publicity around how “banks charge $32 for a $5 Starbucks” and while this is not completely untrue, that situation and attention is driving an inaccurate perception that these fees are our primary source of income. United is fortunate to have a diverse suite of products and business lines which enable us to maintain strong core earnings while being focused on value added products as opposed to just overdraft fees.

What should you do?

• Educate yourself on each of your financial institutions’ policies around overdraft services and make an informed choice.
• To learn more about United’s overdraft services click here
• To learn more about Regulation E (the Federal Rule) click here

We would love to hear from you – what do you think of overdraft services — will you be Opting In?

Kenny Leonard

The provisions in the American Recovery and Reinvestment Act, also known as the “stimulus bill,” that were signed into law in February 2009 has resulted in an increase of SBA lending by over 100% compared to volumes prior to the stimulus. The funds have run out three times now and each time Congress has extended the provisions for only a month or two. The volume of SBA loans submitted after the funds were exhausted dropped over 90% the following week.

Learn more about the affect of the stimulus bill clicking on the link: http://finance.yahoo.com/news/Governmentbacked-small-cnnm-4262871372.html?x=0&.v=2

Mike Chatas

We received some good news from NAGGL late last week. On March 26th it was reported that new legislation was introduced and passed by the House of Representatives (HR 4938), followed late last night by approval in the Senate. The measure (HR 4938) that extends the Recovery Act SBA loan provisions through April 30: Up to $40 million is available for 7(a) and 504 fee reductions/waivers and the 90% 7(a) guarantees, as well as extension of SBA’s authority to provide the higher guarantee (up to 90%).

I remain cautiously optimistic that these provisions will be approved through December 31, 2010, but nothing is certain. Because it’s an election year, some lawmakers are reluctant to vote on additional spending. While loan demand remains quite high here at USFC, we encourage you to contact Kenny Leonard or me to discuss how you can take advantage of these subsidies.

Check out the full details here.

Joe Williams

Over 43% of all married couples argue over money issues, making it one of the major reasons couples fight. I think it is very important for people planning on getting married to do several things:

1. Don’t have secrets – I am absolutely amazed by the high percentages of couples who don’t discuss their finances or credit before walking down the aisle. A successful marriage is one that starts on a solid foundation. I really encourage full disclosure by both individuals.
2. Decide on Joint or Individual Accounts – Best practices that I have seen are when couples choose a system that incorporates both a joint account for household expenses and individual accounts for personal expenses and former debts. There are advantages and disadvantages, but the key is to decide together how the finances are going to be handled.
3. Set Financial Goals Together – Set specific financial goals that you would like to achieve. This could include retirement, building an emergency fund, getting out of debt, and purchasing a home. It is very important that the two of you create a strategy and a timeline so that you can realistically achieve these goals in a timely manner.
4. Create a Budget – Most people are afraid of creating a budget because it creates accountability.  A budget does not have to be “cast in stone”, but should be a spending road map or guideline. I have found that those couples who create a spending plan are considerably more likely to meet and achieve their financial goals. I would encourage sitting down together on regular basis to review your spending plan. These are checkpoints that allow each of you to see if you are doing ok or if you need to make adjustments.
5. Most Important – COMMUNICATION – COMMUNICATION – Effective Communication often emerges as the most difficult obstacle to establishing goals and expectations, and developing a financial plan. Most people have been taught since childhood that discussing money is somehow inappropriate. This is so wrong. Couples must understand that it is not only appropriate but absolutely necessary to managing finances in a marriage. You must communicate in spite of any difficulty.

I believe “Managing Money” is one of the most challenging things for individuals and Couples. Most couples learn it from their parents, who learned it from their parents and the cycle goes on. Before I start working with a couple or teaching a class I tell them “I don’t know anything about you, but if you let me look at your checkbook I can tell you what your priorities are and if you are headed for financial disaster”. This is very frightening to people and it should not be.

There is a great deal of resources for couples who need or want help. However, often times they don’t want to take the time, or only one person from the couple feels that it is important, or they just don’t know where to go. Look for a financial planner, talk to your bank, look for a church that teaches financial classes or find an organization that supports Marriages.

Kenny Leonard

We had a great Let’sTalk Webinar this week discussing Small Business Lending in Today’s Economy. Our participants had a lot of great questions and we thought it would be great to publish those for everyone to see.

1. Can the SBA loans be used to refinance existing debt? Yes, you can refinance existing debt with the 7a loan. There is certain criterion that must be met, however.
2. Aren’t there maximum annual revenues allowed by the SBA? Yes there are maximum revenue limits but it is industry specific not a standard across the board. There are also other personal and business financial ratio tests that must be conducted. And just because you exceed one of them doesn’t mean we can’t do the loan. Contact a USFC representative for more details
3. Are there prepayment penalties for early termination? There are prepayment penalties on the 25yr 7a loan of 5%, 3%, and 1% for the first 3 years respectively and for the first ten years on the 504 loan declining from 10%-1% reducing 1% each year.
4. In talking about the 504 loan, is the information pertinent only to small businesses holding real estate? No, 504 loans can also be used for the purchase and partial refinance of existing debt that was used to acquire fixed assets such as machinery and equipment (no rolling stock, however, such as trucks etc.)
5. How to choose correct loan for my customer? Business buyer purchasing property and business and will need remodel capital and start-up funds. Turn to the experts at USFC. That is what we are here for. We find innovative solutions for various small business transactions and one of our loan officers would be happy to walk through potential structures and find the best opportunity for the customer
6. Do you handle the small SBA loans just for business cash flow no real estate? We do finance loans used for things not related to real estate such as lines of credit, equipment and permanent working capital. We would have to look at having sufficient collateral to support our loan. If there isn’t any additional personal or business collateral we would heavily rely on the business financials and the historical performance. Often times, however, we are able to look at a company’s existing debt structure and refinance all of it resulting in considerable monthly payment savings for the customer.
7. Are self storage properties able to be SBA 504 or 7a loans? Generally the SBA doesn’t allow self storage units to be eligible. There is a requirement that the real estate must be 51% owner occupied and no more than 49% can be rented out. That being said, however, if the business has a retail store on the property that rents moving trucks, sells boxes and other moving supplies etc. and the revenues from that operation are greater than the revenues generated from the rental of the self storage units it is possible that the project may become eligible.
8. When a local source of loan funding offers to become a part of a business loan project, how is that seen w/in an SBA 7(a) or 504 lending project? We like it and so does the SBA! I am assuming this is referring to Downtown Development Authority dollars or other grants or loans from municipalities. These can be complicated to get done if you don’t have experience doing it so rely on us to help you through the process we have the experience and expertise!
9. Is the new SBA Sr. Area Mgr assigned to the Grand Rapids Office aware of the “Interim Loan” program offered through United? That is a great question. I don’t know if they are or not but we will reach out to them. I am only aware of a few financial institutions in the country that offer this program. It is very risky from the financial institution’s perspective and very complicated to pull off. Because of our incredible team, expertise and experience we have successfully done several of these and look forward to doing more.
10. Are you able to pre-approve a small business for a certain selling price before a potential buyer is secured? Unfortunately no. The reason is because the potential buyer is really what we make our loan decision on. Obviously the business they are buying is of interest to us too, but the individual is crucial. What could be done, however, is a business valuation ahead of time that can determine what the “going concern” value of the business is. Unfortunately, however, this would cost money to have done.
11. With the proposed increases in the SBA loan amounts what will happen to the industry specific size criteria? For instance Restaurants can’t be over 6MM in annual revenues. There are also net worth limitations too. So far I haven’t seen anything that would allow for an increase in the “size standards.” That being said please keep in mind that just because a business exceeds one of the size standards doesn’t automatically make them ineligible. With our expertise we are able to successfully propose to the SBA accepting alternative size standards in certain cases.
12. What is the minimum credit scores needed for SBA 7a? Are there ever exceptions? As we mentioned credit scores are important in dealing with the history of good decision making and financial management. That being said if there is a good reason for the credit scores that can be proven via documentation it doesn’t disqualify the borrower. It is still required; however, that there aren’t any outstanding judgments and that there hasn’t been any late payments on government obligations such as taxes and student loans.
13. Follow up on prepayment penalty is business outgrows existing property and needs more space. Can the loans be transferred to the new purchase to eliminate the prepayment penalty? This is an interesting situation. Depending on the specifics I could potentially see a scenario where there could be a second loan done in a subordinated position with a transfer of collateral (i.e. real estate). That being said we would have to look at the entire big picture and get the SBA’s approval.
14. Does United Structured Finance do business valuations? We do not. In an effort to keep free of any conflicts of interest we outsource business valuations this is also true for appraisals and environmental due diligence. We do have a program that allows us to do much cheaper business valuations for smaller loan amounts (typically less than $500,000).

Take some time to review the event recording or the PowerPoint presentation (PDF). All of these materials and a complete transcript of the Q&A session are now available for download on our website.

Charlie Chapell

Right now is a great time to take advantage of the Home Buyer Tax Credit. There has been plenty of excitement in the area as home buyers are moving back into the market. The tax credit and low interest rates help make a great opportunity for new home buyers.

To take advantage of the tax credit you will need to have a signed purchase contract by April 30^th, 2010 and close the sale by June 30^th, 2010. There are 2 tax credits available to the purchaser;

• The First Time Home Buyer Credit of up to $8,000 to first time home buyers. To qualify as a “first time home buyer” the purchaser or his/her spouse may not have owned a residence during the last 3 years.
• The second is a credit up to $6,500 for current home owners purchasing a home between November 7, 2009 and April 30^th, 2010, who currently owns or has owned a home for 5 consecutive years of the previous 8 years are eligible.  There are income limits for eligibility – $125,000 for an individual and $225,000 for joint income.

To learn more visit http://www.federalhousingtaxcredit.com or contact your local United Bank & Trust mortgage professional for further questions, information and eligibility requirements.

Kenny Leonard

Late last night the Senate passed and this morning President Obama signed into law a temporary 30-day extension of the SBA Recovery Act provisions with a $60 million appropriation. The 30-day extension provides for increased government guarantees (up to 90%) and the elimination of the upfront guarantee fee on SBA loans. We are now waiting for the SBA to announce details of its implementation plans.

Because of the limited 30-day extension this does little to cover clients that are early in the SBA process but does help those that have SBA applications that are submitted and awaiting approval and for those that are within a week or two of filing. We are encouraged by the Senate’s action and look for further SBA appropriations and enhancements in upcoming Senate bills that will extend these provisions through the end of the year.

To learn more about pending legislation for further SBA appropriations and enhancements, click here.

Stay tuned…