Is Your Bank About to Call Your Loan?

Corrigendum: This US Capital Partners blogpost is based on, among other sources, The Wall Street Journal article “Debate: Do Big Banks Lend Enough to Small Businesses?” (Dec. 13, 2011), featuring guest speakers Ami Kassar and Marc Bernstein.How to measure the risk of your bank calling your small-business loan, and what to do if you need refinancing.

According to a recent article in the Los Angeles Times, Bank of America is now demanding that some of its small-business customers pay off their credit line balances in full instead of making monthly payments. If customers are unable to pay off these balances on demand, they are being offered new repayment plans over as long as 5 years, but with far higher interest rates than before.

How to Know if Your Loan is About to be Called?

Unfortunately, your bank will generally not tell you your loan will be “called,” or not renewed, until right before it takes action. How do you know if your business is at risk? For a few easy steps to assess whether you are a likely candidate for loan termination at your bank, read our guide on financing.

A Few Reasons Why Banks Drop Small-Business Loans

Banks will pull loans for a number of reasons, but the most common are:

 • poor financial performance by your business

• your bank’s own credit problems

• to impress the bank regulators

According to the Los Angeles Times article, "Bank of America severing some small-business credit lines," the Bank of America began dropping small-business loans because of pressure to raise capital and cut risks, in the wake of another round of Federal Reserve bank stress tests. The Wall Street Journal reported also that Bank of America’s CEO, Brian Moynihan, has told federal regulators that if the bank’s financial problems deepen, it could start retreating from certain parts of the country.

What to Do If Your Business is at Risk

Marin McElhanyIf your small-business loan is at risk of being called, you should contact our team at US Capital Partners, LLC immediately. There are usually plenty of financing options available to a small business in your position. US Capital Partners will help you secure the financing your business needs, so that you don’t suddenly find yourself at risk if the bank terminates your loan. 

If you would like to know more about how your business can secure the funding it needs, contact our Vice President of Sales and Marketing, Marin McElhany at marin@uscapitalpartners.net or call (415) 889-1010.

Small Business Lending for Entrepreneurs: Financing Start-Ups While Protecting Personal Assets

With the continued constriction of credit showing few signs of abating in the marketplace, many start-ups are looking for creative ways to obtain financing. For entrepreneurs considering asset loans, it's important to know how to protect yourself when using personal assets to secure a business loan.

I recently read another relevant and interesting article on small business financing in the Wall Street Journal by Emily Maltby titled For Start-Ups, Key Issue is Protecting Personal Assets. It points out that small business lending is a complex field with no simple answers and the markets are not “efficient” in the true macroeconomic view.

This means you may not always get the appropriate type of credit commensurate with your risk profile. This is because one can only practically survey a few lenders due to time and knowledge constraints. What is possible is to understand some high level principles in lending and apply them to each unique borrowing situation.

1. It's important to understand each lender's motivations and capabilities to make loans.

2. Keep in mind your particular risk profile and how that fits the appetite of the specific lender group you are applying to.

Banks, for instance, are mandated to make relatively risk free loans, at appropriately low rates. One definition of low risk is over collateralized, such as a personal guarantee as discussed in the article, demonstrating good credit history, long time in business with stable earnings history and adequate debt coverage.

Then one has to realize it is a bank's duty to ask for as much as possible in the form of collateral, like a personal guarantee, and it is your job (or preferably the duty of a specialized financial advisor) to broadly survey the market and politely negotiate as little collateral surrender as possible, until you reach an “efficient” economic deal.

Here we would define “efficient” as a loan where you are receiving an appropriate loan amount, at a “market” interest rate, and with minimum pledged collateral given your specific risk profile. It may not always be the answer you want, but it will be comforting to know few did better given the same deal parameters.

With the widespread tightening of lending standards, businesses who aren’t a good fit for traditional lending institutions need to look outside the bankable box to private investment banks or alternative lenders who are readily available to help businesses secure financing for appropriate working and growth capital.

If your business currently doesn't fit a bank's lending risk profile, you may be interested in learning more about how to secure Alternative Financing and Small Business Loans for Working and Growth Capital.

If you would like to know more about how your business can secure the funding it needs, visit http://www.uscapitalpartners.net/ or call (415) 882-7160.