Commercial Loan Rates - SBA Loans
Executive summary about SBA Loans By Jeff Rauth and Sue B. Malone
Currently one of the biggest issues in regards to commercial loan rates, SBA loans and in particular the SBA 7a loans is an inversion between the Prime Rate and LIBOR. As LIBOR has risen above PRIME, this has forced many foreign investors away from buying commercial mortgage securities on our already battered secondary market, further reducing the liquidity in our banking system and pushing commercial loan rates up.
Another challenge here is the SBA sets restrictions on the margin that banks can charged on the commercial loan rates at 2.75% max, above the index, the Prime Rate. The SBA has set this up in an effort to keep rates low for borrowers helping spur our economy.
Most capital sources for foreign investors are tied to LIBOR. This is upside down as LIBOR is typically below PRIME creating the needed spread. The 30 Day LIBOR rate is currently at 1.45% so borrowers should think about their commercial loan rates at 1.45% + 3% + the banks margin of 2.75% = or an effective interest rate of 7.2%. This should be the current maximum rate on SBA 7a Loans. Many banks will offer a lower spread on the 2.75% in an effort to win deals though we are seeing most banks not compete on commercial loan rates but rather on reliability of closing. 
Small Business SBA Loan Info - Is Anyone Out There Making Loans? Will the Federal Government Bailout
In the first two articles we talked about the prospects of small businesses finally receiving needed capital and some of the sources you can turn to. So assume you have selected a couple of smaller SBA lenders and are now ready to give your pitch. What information or documentation should you furnish? Here are some suggestions to soften the blow: For some reason, people are naturally fearful of meeting bankers. Take the mind set that they are in business to help you.
• Dress appropriately. Unless you're a lawyer or planning to go to a funeral later on, you don't have to dress in a business suit. Business casual is fine, with a clean, well manicured look. That's right. One of the best impressions I ever received was from a large building contractor who showed up in his company truck with a well-pressed uniform (and company logo) he and his employees use, complete with tools and a hard hat. Well, maybe drop the tools. He just looked like a busy successful contractor.
Bankers absolutely hate the used car sales mentality. Quiet and understated is good. Stop waving your arms.
• Brief and to the point. Talk really is cheap to a banker.
• Bring a business folder. I will never forget one meeting I had with a prospective lender in which they brought a well organized business folder (I loved the tabs) with the initial business plan, current financials, and a budget. There's no way you can find out if they are interested in loaning you money by phone: "Absolutely, come on in, we'll be happy to discuss it with you." As far as I know they're only interested in opening up a new account. It disguises their true intentions. That way you can look them in the eye and ask if they're really planning to loan money.
• Ask the tough questions. Don't be afraid. The typical prospective borrower simply asks their terms, amounts available, and how long it takes. Here are some better questions: 1) Do you typically loan to small businesses in the same industry as myself? 2) I'm looking for a bank that specializes in helping small businesses. 3) How many small business loans have you personally made in the last 30 days (say this is politely because you're hitting them right between the eyes). What were the range of loan amounts? 4) Has your bank held off any in making loans because of the credit crisis? Is your bank really making business loans at this point? 6) Are you making unsecured loans at this point? 7) What credit score should I be have? 8) If you require real estate equity, will it have to be 100% backed by real estate? Will you take trade fixtures and equipment? 11) What amount of positive cash flow should I have to support the loan?, and 12) What kind of personal and business financial documents will I be preparing?
• Examine your credit report before the interview. Get a recent copy of your credit report at www.annualcreditreport.com. Give the banker a summary of your situation. They're not interested in long stories: "Yeah, my mortgage company was taken over by ABC and they didn't even let me know. You know I call this woman in the bank four different times and she told me four different stories. Alright already. We get the point. Be prepared to tell them, short and sweet, the following issues:
1) how many credit cards or other revolving debt you have, and the approximate limits and balances
2) loan balances on your mortgages and the conservative fair market value of your home
3) unsecured loans or lines of credit previously taken out
4) the total amount of debt that you owe
6) current credit score (that's right, you have to pay extra through Experian to get this, but it is worth it).
• Talk to the right person. You could very well be talking to a lower level person that will have nothing to do with a decision on your loan. Before the meeting, very professionally ask if you can talk to the person who would be primarily making the decision.
Simply telling them that you need to expand or use it for cash flow needs is like whistling in the wind.
• Talk past performance. Remember, talk is cheap for the future. A banker is more interested in the actual historic figures the last few years.
• Positive cash flow. There are some loan programs, such as the SBA Community Express Program that only ask about gross income. But other programs will require your net cash flow.
• Positive, positive, positive. Bankers only want top hear the positive, not the negative. They all know that you need money. It is the kiss of death to use such phrases as: "I could really use the money now", "We need this money quickly because of cash flow needs", or "Our business is at a point if we don't receive this money, it will jeopardize its success" (That really shot yourself and the foot). Whatever you do, never used such words as "desperate", "trouble", or "needed it now", even if it is true. Instead, talk in terms of expanding your business to make more income.
• They love budgets. It shows you are the type of person who has spent the time to map out future success.
• A new bank is OK. Don't be afraid to go to a new bank.
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