As Americans, we are on the latest CNN, Fox, local news and developments in Washington to save the programs to be glued. If you own a small business who are waiting for your rescue plan - good news for freedom of capital markets in order for a loan from modest small businesses. In the midst of this sad news, one might be tempted to ask: "Can you hear me? Is there anyone out there still making loans for businesses? There are lenders such as, but less so inDay.
To understand the problem, you must have an opinion about how to operate the SBA lender. At the time of our parents and grandparents, the banks lend money to their cash flow is based on bank deposits. They held the loans in house and collected the interest. Awakened can not stay in the accounting class for knowledge to do only a limited number of credits - the amount of interest you earn is small compared to the sum of the loan. Youcould a loan of U.S. $ 100,000 to make, but only up to $ 10,000 in the year of interest. Eventually, you have to do to borrow more money.
But all this has in recent decades, when the banks were able to immediately sell their loans on the secondary market, and are converted into cash. For the same $ 100,000 loan could be sold immediately, hypothetically, $ 110,000 (or added value of the prize is that the buyer would receive the interest for the durationLoans on borrowed capital) and the Bank would receive the money in their coffers. Thus transformed, the engine is running and began to crank borrowing more and more. Plus they sold on the secondary market, could be made to the profit and additional loans.
SBA loans have been particularly interesting. Investors drooled over these children. The federal government guarantees them a rate between 50% and 90% inProgram uses. Therefore, the banks will cooperate and combine their loans, the sales on the secondary market. Whoopee! In return, the investors would buy almost a guarantee. It "was a win - win situation for everyone. For this reason, the secondary market was very strong for these loans.
But it was a disadvantage. SBA loans are on the floor percentage (4.5% for the Community Express loans with maturities of ten years) and the Wall Street Journal first class. For example, the currentPrime Rate is 3.25% and when combined with the bottom percent of a total return of 7.5%. But the base rate continues to decline. As such, the interest will be shorter and thus less attractive to investors ( "smaller").
And worse, the number of SBA loans is declining. For example, in August and September of 2008, SBA loans decreased by approximately 50% over the previous year.
Consequently, the secondary market dried up. According to James Hughes,President and Chief Executive Officer of units Bancorp, there is virtually no market left for SBA loans. See the traction in Aftermarket Hits SBA Lenders (30 October 2008). This means that large banks are only for the money of investors and debt used by companies for the processing of loans.
So what is a small company to do? Here are some suggestions:
• Choose a licensed SBA lender, not a large bank. Remember, banks are institutions that have traditionallyChecking and savings accounts, credit cards, CDs, etc.. In this market, make little or no credit to small businesses. On the other hand, are not depository SBA lender to loan much sooner.
• Find a creditor who has had long experience with loans for small businesses. They are much more likely to be favorable for small businesses.
• Choose a lender that does nothing, but lending to small businesses in SBA. Why is their only way toMoney, have no other choice than to keep on giving, even in a guaranteed adverse market conditions.
The good news is that Congress so we hope to relaunch the debate intensified aftermarket support for on-lending to small businesses. I'm not saying this as a broad idealistic, but simply because it can not be connected to the channels of capital for an indefinite period in our country. Even our politicians can not spoil this simple fact of capitalism. If that happens, money will flow again. I firmlythis is the case, it's just a matter of time. In the next article I will speak of what financial institutions could still make loans to businesses.
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