Getting more commercial loans funded with guaranteed lending.Guaranteed lending is a popular option used by many commercial loan officers at banks in order to approve transactions that otherwise wouldn't meet the banks credit parameters. The primary tool used by banks to provide guaranteed lending is the Small Business Administration (SBA SBA abbr. Small Business Administration Noun 1. SBA - an independent agency of the United States government that protects the interests of small businesses and ensures that they receive a fair share of government ). Established in 1953, the SBA has achieved their success by providing loan guarantees to financial institutions for the benefit of the small business owner. Their loan programs vary in the loan amount available, the use of proceeds and the distribution channel. The SBA provides the bank with a guarantee on the loan, which in turn minimizes the risk taken by the bank. This guarantee therefore affords the bank the opportunity to approve a transaction that doesn't meet standard bank parameters. Typical scenarios include length of time in business, lack of secondary source of repayment, or a FICO score FICO Score A standard credit score which makes up a substantial portion of a credit report that credit bureaus sell to lenders so they can asses an applicant's credit risk and whether to extend them credit. less than the bank standard for the business owner. A guarantee offsets the additional risk on the transaction and it makes the deal more palatable pal·at·a·ble adj. 1. Acceptable to the taste; sufficiently agreeable in flavor to be eaten. 2. Acceptable or agreeable to the mind or sensibilities: a palatable solution to the problem. for a bank to approve. Because of the significant amount of resources that need to be implemented by a bank in order to do SBA loans, smaller banks may not have the ability to do them. This translates into a loss for the bank--unable to finance some businesses that are on the cuffs of being approved but just don't quite meet the credit parameters. The State of California California (kăl'ĭfôr`nyə), most populous state in the United States, located in the Far West; bordered by Oregon (N), Nevada and, across the Colorado River, Arizona (E), Mexico (S), and the Pacific Ocean (W). developed a State Loan Guarantee Program almost 30 years ago to complement SBA lending. The State program is similar to the SBA in the workings of the guarantee. 11 Financial Development Corporations offer the program including The San Fernando Valley San Fernando Valley Valley, southern California, U.S. Northwest of central Los Angeles, the valley is bounded by the San Gabriel, Santa Susana, and Santa Monica mountains and the Simi Hills. Financial Development Corporation (SFV-FDC). The SFV-FDC opened its doors in 2001, and serves businesses and banks not just in the San Fernando Valley but its surrounding sur·round tr.v. sur·round·ed, sur·round·ing, sur·rounds 1. To extend on all sides of simultaneously; encircle. 2. To enclose or confine on all sides so as to bar escape or outside communication. n. areas as well. The SFV-FDC offers up to a $350,000 guarantee or 75% of the transaction, whichever is less. The purpose of the financing can be for any business purpose including working capital, fixed asset acquisition, and commercial real estate. The product is intended to help the first-time business borrower which is typically looking for Looking for In the context of general equities, this describing a buy interest in which a dealer is asked to offer stock, often involving a capital commitment. Antithesis of in touch with. capital in the $50,000 to $250,000 range. The business may have only existed for two years, cashflow may be tight but promising, available collateral (business and personal assets) may only cover the loan amount or the credit score may be tainted taint v. taint·ed, taint·ing, taints v.tr. 1. To affect with or as if with a disease. 2. To affect with decay or putrefaction; spoil. See Synonyms at contaminate. 3. with minor derogatory de·rog·a·to·ry adj. 1. Disparaging; belittling: a derogatory comment. 2. Tending to detract or diminish. items. These scenarios provide for an ideal situation were a guarantee could provide the additional security for the banks. The benefit for the bank is that it not only added a new loan on its books but it also added a new relationship to the bank. The state loan guarantee program is not only for small, community banks; it is available to any commercial bank. Many larger banks that utilize SBA have also found ways to utilize the state program for these credit-enhanced transactions. Not everything fits within the SBA mold mold, name for certain multicellular organisms of the various classes of the kingdom Fungi, characteristically having bodies composed of a cottony mycelium. The colors of molds are caused by the spores, which are borne on the mycelium. , so in order to find a way of booking the deal as oppose to losing it, they turn to the state program which at times may be able to do deals that don't fit the SBA model. The SFV-FDC just completed its third fiscal year. In that time, it has successfully booked 75 loan guarantees totaling $8.2 million in guarantees. These transactions secured $16 million in new loans to local businesses. We encourage all commercial loan officers to learn more about the State Loan Guarantee Program and the SFV-FDC. It's a great vehicle to help fund the one extra deal that you would love to have on your books but just doesn't make it without the credit-enhancement. Please "Call us before you say No!" Information for this article was provided by the SFV-FDC For more information, please call 818/834-9860 or visit the website at www.sfvfdc.org. |
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