Tip of the Week

Surviving in a Down Economy and Leveraging the Power of SBA

We’re not economists, so we won’t sit here and project exactly how we got into this “recession”, or how long it will take to get out.  We’re not experts in the secondary market, so we can’t predict when it will recover or define for you why charging LIBOR versus prime rate will be in your best interest.  We know some in Congress and the Obama Transition Team are working to pass an economic stimulus package that would benefit the SBA lending world in some way, such as reduced fees and higher guaranty amounts, but we can’t tell you if or when that will become a reality.  Will SBA lending recover in the future?  We’re banking on it, but it may take some time.

So, before things shut down for the “silly season”, uh, the Holiday Season, let’s take a closer look at some key issues facing all SBA Lenders as we wrap up 2008 and begin to look forward to 2009.  What are some “mega trends” that we should all be aware of and what should we be doing about them?

What Are Some Problems We Might Control?

When we think of a problem, we need to break it down into parts, so we can digest it, look at it, analyze it….so ultimately, we can address it and possibly turn the problem into an opportunity.

So, if you look at the problem and make it specific to your organization, what would that look like?

Has your loan volume declined?

• If so, by how much?
• Do you know your lending trends over a specified period of time?
• What are the symptoms of the volume decline? (Is it purely due to the slow down in the economy? Or are their other moving parts in your systems that should be considered?)

Are your lending opportunities more limited?

• If so, can you define why?
• Have you limited your scope or are borrowers becoming more conservative in their approach to searching out lending options?

Is your loan portfolio softening?

• By that we mean, are you having to shift your focus from originating new loans to dealing with past due payments on existing loans?
• Are you concerned with the effectiveness of your ability to maintain a touch point with your existing customers?

Are you trying to figure out the “Herndon” process of how to get a SBA loan guaranty purchased timely, without the pain of a guaranty repair or denial?

• How has your experience been with submitting guaranty purchase requests?
• Are you prepared to defend your loan guaranty purchase request if you do encounter an issue with SBA?

How are you dealing with SBA’s risk management approach?

• Are you prepared for the on-site review?
• Do you understand your lender’s portal information?

Think About How SBA Can Be A Solution

• Getting back to fundamentals

o SBA helps lenders mitigate risk – done right you have a significant guarantee

o The SBA product can provide more flexibility to clients – lower down payments, longer terms, ease in risk associated with riskier situations (e.g., start up businesses, business acquisitions, riskier industries)

o SBA should be a counter cyclical product, it works best when times are tough (like now)

• Helping prospects buy

o Shift the sales culture from a “product push” to a consultative service approach

o Listen for real needs, also known as pain or gain indicators

o Help them make an informed buying decision best for them, don’t push for the close

o Make the government “process” easy for the loan customer – improve your systems

• Know your customer

o Build a relationship, understand the story, create an optimum structure (the SBA products fit when credit is not available elsewhere)

o Make routine site visits for prudent servicing and proactive relationship sales (be a prudent lender)

o Develop trust and effective communication and avoid surprises

• Leverage both 7(a) and 504 lending programs

o If customer focused, you’ll want to offer the best solution for their needs

o 504 is often the better product for the customer, especially in larger real estate deals (but find a proactive, high quality 504 lending partner – not all CDC’s are created equally)

o 7(a) has the flexibility when financing a mixed use of proceeds and can be a less convoluted approach than 504, if it makes more sense

How Can sbaAccess Help?

We can help with all of the above and more.  We’re gearing up for an active and exciting 2009 – and we want you to be a part of it.    Count on us for quality, measured and value oriented insight and support.  We can tailor our services to suit just about any budget.    We’re around during the holidays and we’d be delighted to have an informal, complimentary conversation to discuss your problems and solutions, so that next year is better than the last.  Don’t just survive the tough times, THRIVE.

Take the Right Approach

Brian Burke and Karen McHugh