I recently received an email
from Bernie Siegel of Siegal Financial Group, an SBA loan specialist that helps
companies through the process of getting an SBA loan. I haven’t used his services because we help
our clients with that, but I do know Bernie has a good reputation and he also
teaches classes at the International Business Brokers Association conferences
on how business brokers and M&A advisors can work with clients on the SBA loan process.
By the way, we recently closed a $5.5 million dollar acquisition that was financed about 85% by SBA lenders, so you can sometimes do some substantial amounts through the SBA programs.
Bernie has given me
permission to republish his take on the current market for SBA small business acquisition financing:
“The recent rate cuts were
initiated because of the liquidity issue resulting from the sub-prime mortgage
fiasco. Most economists are predicting
slow growth (1%-2%) for the fourth quarter and first quarter 2008. New jobs
continue to be generated at about 125,000 per month. So, the “R” word
is not something on everyone’s tongue at all.
But the prime rate does not necessarily effect long term rates. In fact, the ten year treasury is still
slightly higher than it was the day before the 50 basis point prime rate
The problem is that the
whole sub-prime problem is not yet measurable.
We just do not know what the
repercussions are going to be. But, some
immediate results can be noted, that may have an effect on business acquisition
financing. Here are two:
1. Generally, it is now much harder to obtain
any mortgage on real estate, other than a conforming first mortgage. Even borrowers with excellent credit may
experience difficulty in arranging a HELOC, a jumbo mortgage, or mortgage with
an LTV greater than the conventional 80% figure. That may make it more difficult for buyers
to generate cash injection for some of their business purchase transactions.
2. We have not yet experienced a stated credit
tightening from the SBA lenders. To
date, they have reassured us that they see no changes in their
under-writing/credit policies. In fact,
I believe the combination of rate reductions, and lack of liquidity in the
mortgage sector, will make SBA lending more attractive relative to other
options. Additionally, if lenders are
going to cut back on mortgage financing, they need to find other profitable
areas in which to lend. SBA lending,
with its attractive government guarantee, may be the answer for some lenders.”