The rates that SBA lenders charge borrowers is dropping at the same time that lending criteria is tightening up. Essentially lenders are going to charge their customers less for their money; they just won’t lend it to them!
I have a business acquaintance that worked for Business Loans Express (BLX). He specialized in business loans, just as the name suggests. A few weeks ago BLX announced that they are no longer funding business loans, and now would only do commercial real estate. What about the name? Well, that name obviously doesn’t work any longer, so the name is now Ciena – and my friend is out of a job.
In fact, BLX pre-approved one of the businesses we have for sale, for $1.5mm in funding. I guess that pre-approval letter is worth nothing now.
CIT, the largest SBA lender by dollar volume in the country made some changes that are just being announced. They have increased their minimum cash injection from 10% to 15% (not all will qualify for the 15%). Moreover, they now require an existing business to have three year history of adequate cash flow coverage to meet their business acquisition underwriting criteria. They had relaxed to one point last year where they only required one year of cash flow history to qualify.
Some banks are now requiring collateral coverage, where before they didn’t require any at all.
The good news is that it is still possible. We just finished packaging a high-end sign company, and I was able to get pre-approval on that company for $2mm, the maximum SBA amount (not with BLX, obviously). Because of recent growth, it only has two years of cash flow that justifies the purchase price, so I suppose CIT would not have pre-approved it.
As always, buyers with good credit, applicable experience and properly capitalized can still be financed to acquire properly priced businesses. Well, maybe a little smaller business than last year.