The SBA Cannot Even Give Money Away Through the Banking System

November 7, 2009 by  Filed under: Loans 

The banks have virtually shut down, especially commercial lending. They may as well hang an out of business sign on their door, but should probably ad the following; we are out of business because we do not believe in our economy at all. Why else would they refuse to lend?

A very good business man I know, who has already had a small SBA loan and has paid flawlessly over many years. He has an excellent credit score, in the 700’s, his business is and has been profitable and is growing monthly both gross revenue and profitability, he has adequate collateral and he wants to borrow a significant amount to purchase another profitable business heavy with assets to merge into his own. It is a natural deal, perfect in every way. No real risk.

I sent him back to his bank and suggested he seek another SBA guaranteed loan, and with a 90% guaranty, how could he be refused.

He actually was not refused; his bank simply said we are not doing any lending so thanks but no thanks. He went to another two banks and heard the same story. Not even interested in an application, unmotivated by a 90% guaranty, high collateral value and the other benefits this borrower brings to the deal.

It amazes me, how could they just go out of the lending business even with 90% guarantee from the SBA?

So this deal will not happen, yet, we continue to search for a bank still in the lending business.

What to do he asked me? I thought very briefly and gave him the only answer available.

It must be done with seller financing and a wrap around note. In other words, the seller must keep his financing in place; my buyer will step into the sellers LLC and pay the note as well as an additional note to the seller for his profit. The seller is unhappy as he wanted a big hit and to be out of the debt obligation, but it is what it is and if this buyer cannot finance, then no buyer can. Thus, the seller must realize if he wants to sell he must be the bank.

This is the way we must do it in today’s market.

So yes, money is not available from the lenders, but it may be available from the seller. Seller financing is the only remaining avenue. Explore this approach, educate the seller and close a good deal. It is the only way in today’s shut down credit market.

Donald Todrin is the CEO and Founder of Second Wind Consultants, Inc who specializes in SBA Loan Workouts, business debt forgiveness and solving difficult business problems in general. Don has authored dozens of articles on SBA loan default and debt workouts.
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