VetBizCentral.com: FYI 09 November 2009

FYI Header

5th Annual Veteran Entrepreneurial Training Conference
10 November 2010- Troy, MI (MORE INFO) or REGISTER HERE

ED's WORD UPDATE: AUGUST 2010
FYI UPDATE: AUGUST 2010

THINGS TO DO

Openings Available For Entrepreneurial Boot Camp For Disabled Vets
MORE

Michigan's Own
Military and Space Museum
Frankenmuth, MI 48734

Easy-access video guides that provide compact information, training and more.

* * *

Entrepreneurship Bootcamp for Veterans with Disabilities (EBV) Whitman School of Management

* * *

SBA Launches Online Course

"How to Win Federal Contracts"
Word Doc HERE
SBA Page HERE

* * *

Dept. of VA American Reinvestment & Recovery Act Update

(PowerPoint)

Week of 09 November 2009

SBA Lending Down Sharply in Michigan

Funding Cuts at Vets Homes Sparks Rebuke

Building Your Biz Credit

Sagging Economy Prompts Entrepreneurial Spirit

Getting That Elusive Biz Loan

SBA Lending Down Sharply in Michigan

Business Review West Michigan
Mark Sanchez

U.S. Small Business Administration lending picked up in Michigan in recent months, though it remained far below the level of the previous fiscal year.

Lending under the SBA’s primary 7(a) program declined 42 percent in the number of loans, to 1,133, and 25 percent in dollar value, to $236.5 million, for the 2009 fiscal year that ended Sept. 30.

Loans made through the SBA 504 program declined 30 percent in volume, to 152 from 225, and 30 percent in value, from $107.2 million to $74.5 million.

The decreases were even worse at mid-fiscal year — 64 percent in 7(a) and 66 percent for 504 loans — before lending rebounded beginning in July through incentives offered by the SBA.

The year-to-year declines are clearly reflective of the economy. Lenders hope to see improvement in the new fiscal year, particularly with momentum built up from the incentives.

Huntington Bank even has a goal to improve its SBA lending by "no less than 30 percent" in FY 2009. The bank three years ago placed a far greater emphasis on doing SBA lending.

"We’re nowhere near done," said Craig Street, senior vice president and national director for SBA lending at the Columbus, Ohio-based Huntington Bank.

"We still think there’s a long way to go,"Street said. "We’re just scratching the surface."

Huntington Bank was the top bank in Michigan in FY 2009 in 7(a) loans by volume, with 184 for $24.2 million. Citizens Republic Bancorp was second in volume, with 136 loans, and first in the state in collective value at $30.0 million.

Lending under 7(a) did accelerate in the latter half of the fiscal year, after the SBA increased in guaranty to 90 percent from 75 percent and waived fees.

The moves boosted 7(a) from an average of 15 to 29 per week and resulted in a 14 percent year-to-year increase in lending during the fourth quarter of FY 2009. The incentives lured borrowers who previously shied away from SBA lending before because of the fees, said Mike Moraw, a vice president and SBA product specialist at Huntington.

"We’re looking at a variety of deals that wouldn’t have been considered before," Moraw said.

Likewise, Sandra Bloem of the Economic Development Foundation in Grand Rapids has seen an increase in inquiries for 504 lending of late, which she attributes to the incentives.

"It’s rebounded some, but not where we want it to be," Bloom said of 504 lending that’s used primarily for capital projects.

"People are being very cautious. We just hope some of this moves forward very shortly," she said.

The Economic Development Foundation, founded in 1981, is one of six certified development corporations in the state that work with the SBA and commercial lenders to package 504 loans for borrowers.

The decline in SBA lending “is very much the economy,” Bloem said. The economic conditions have also led more borrowers with outstanding loans to struggle and either have to liquidate or modify the terms of their loan.

"We’ve had more of that in the last six months than we’ve done in our entire history," she said.

Contact Mark Sanchez at marks@mbusinessreview.com

Back to the top

* * *

Funding Cuts at Vets Homes Sparks Rebuke

In a letter to the editor of the Holland (MI) Sentinel (11/5, 17K), Harvey Slotman of Holland, Michigan, writes about the impact of state budget cuts on the state veterans homes in Grand Rapids and Marquette, Michigan, where he was once on the Board of Managers.

"These homes are funded by the Veterans Administration, the state's general fund, Medicare and Medicaid payments and payments by residents. In the past six or seven years, the homes have taken a large hit from the state, in some years absorbing more of a cut than other state departments. In fiscal year 2010, the cuts are $950,000 for Grand Rapids and $300,000 for Marquette."

Slotman laments that he and other board members were replaced with people who live farther away, increasing the state's expenditures for travel expenses.

In an effort to balance the state’s riddled budget, the Legislature and Governor agreed to cut funding to Veteran Services by 25 percent – the largest percentage of cuts of any state department.

Back to the top

* * *

Building Your Biz Credit

By RAYMUND FLANDEZ ~ Wall Street Journal

Small-business owners are in a Catch 22. Obtaining financing for their companies can be difficult without a strong business credit history. At the same time, banks and credit-card issuers have tightened standards and don't want to risk providing loans or lines of credit to small companies that don't have proven track records.

The solution, business-credit experts say, is for would-be borrowers to buckle down, keep airtight records and instill new credit-building practices. Keep in mind, that's an ongoing process and requires some vigilance. But the good news? "You can build solid business credit in as little as a year or two, depending on how proactive you are," says Gerri Detweiler, personal finance adviser for Credit.com and co-author of "Business Credit Success."

In the start-up phase, business owners often rely on personal-credit histories to prove their creditworthiness. But as the company grows, it's important to establish a separate business credit history, legitimizing a business in the eyes of lenders.

Here are the three best ways to build business credit:

1. Get your books and records in order. First, if you're a sole proprietor, consider forming a business entity – such as a corporation or a limited liability company – that provides you liability protection and generally carries more heft. Next, get an accountant to validate your financial statements so that banks and other credit issuers can see that you're running a legitimate and healthy business. "It just adds credibility to your whole package that you're submitting to a creditor," says Alice Bredin, small-business adviser for American Express Open. "It's one-part proof reader and one-part stamp of approval." In addition, she says, make sure to keep all of your business licenses current; otherwise, banks may question the viability of your business.

2. Obtain business or trade credit with vendors or suppliers. Start by doing business only with vendors and suppliers that are able to report your company's payment history to credit-reporting agencies such as Dun & Bradstreet, Experian, Small Business Financial Exchange and Cortera, Ms. Detweiler says. If possible, register with these commercial credit bureaus, which lenders check before approving loans. Also, make sure to review your business credit report at least once a year to see where your company stands.

Yves Darbouze, chief executive of Plot Multimedia LLC of New York, says he was able to secure a $100,000 equipment loan in 2007 because his digital marketing agency had a Dun & Bradstreet rating of 87 out of 100. To get that rating, Mr. Darbouze secured loans and credit cards from local gas stations and companies such as Home Depot and Dell, and consistently paid them off.

3. Always practice fiscal responsibility. Make sure you pay all bills on time or even ahead of time, Ms. Detweiler says. Late bill payments can have a negative impact on your credit score. How you handle your company's cash flow is a sign of how creditworthy your business is, she says. And when applying for a loan, make sure you're using it for revenue-generating "good debt" only, such as new equipment, key staff or a better location, says Ms. Bredin, rather than value-depreciating "bad debts" -- unnecessary office furniture or redundant technology.

Still, the process of building business credit takes time – and in an economic downturn, it's tough to obtain financing even with good credit. Mr. Darbouze, who hasn't been able to get a traditional bank loan, is trying to secure a Small Business Administration-guaranteed loan to expand his 22-person agency to 50 employees. "It's been extremely difficult," he says.

Write to Raymund Flandez at raymund.flandez@wsj.com

Back to the top

* * *

Sagging Economy Prompts Entrepreneurial Spirit

With job security sagging even in traditionally stable industries, many Americans, by choice or necessity, are leaving the corporate cocoon to start their own businesses. Brian Headd, an economist at the Small Business Administration, says that the number of one-person operations rises when the economy is struggling.

Of the more than 600,000 companies started in the United States each year, only about half will survive for five years or longer, the agency says. How do you make sure you're among the winners?

-- Do the legwork. Passion and a market for what you sell are just the beginning. You need to find out all you can about the sector and analyze competitors' pricing and marketing.

That kind of legwork paid off for David Miller of Bethesda. After toying with the idea of starting a Web-based fantasy-sports game aimed at families, Miller, 36, attended the annual meeting of the Fantasy Sports Trade Association. Miller found that 40 percent of National Football League viewers are women. Because women tend to control the family budget, he figures sponsors and advertisers will want exposure to them.

Miller launched FamilyFantasySports.com in June 2008. He enlisted a partner and together they invested in the "low six figures" over a period of two years.

To keep costs low, neither pays for office space, and the company has relied on social-networking sites to gin up interest. Through Twitter they got on a local radio program, which landed them a deal with a sports merchandising company that provides prizes on their Web site to winners of competitions.

-- Write a detailed business plan. It may sound daunting, but the exercise will help you shape your idea. If you need help, seek out your local office of Score. The nonprofit partner of the Small Business Administration has 11,000 counselors who mentor small-business owners. Or, visit SBA.gov to find the closest Veterans Business Outreach Center.

Such feedback was key for Sara Polon, who sells soups made from locally grown ingredients. After reading Michael Pollan's book on American eating habits, "The Omnivore's Dilemma," the 32-year-old started Souper Girl.

In the depths of the recession last year, Polon kept her old job while she developed a list of 50 vegetarian soups that passed muster. She invested $11,000 of her savings in a catchy Web site thesoupergirl.com and kitchen equipment. She rented kitchen space at a local restaurant that needed extra cash, enlisted her energetic mother to help (Polon says she was raised on soup), and spread the word. Polon made back her initial investment within four months.

Her soup, which sells for $12.75 a quart, comes with witty labels like "Ice Ice Vichyssoise Soup." Polon says she is attracting so many orders that she will hire her first full-time employee.

-- Get your financing in order. If you need a loan, your best bet is a small community bank or credit union, where you'll need a business plan to make your case to the loan officer. The economic slowdown has made lenders stingier, but the stimulus package provided the SBA with $730 million. Part of that money will be used to expand the agency's micro-loan program, which grants loans of up to $35,000 to small businesses.

To cover expenses while your business gets under way, you should have six months' to a year's worth of money in reserve.

-- Secure health insurance. This can be a challenge, but it may be easier to find coverage than you think, especially if you're healthy. Souper Girl's Polon, who has her own health insurance, pays about $150 a month to participate in a Blue Cross HMO. To familiarize yourself with what's available, check eHealthInsurance.com or Coverageforall.org.

-- Enlist financial expertise. Get a good accountant. You may be eligible for more than 100 tax deductions, so it's important to keep a meticulous record of what you spend. For guidance, download IRS Publication 334, Tax Guide for Small Businesses.

-- Save for retirement. As a small-business owner you won't have a corporate pension, but you can start a retirement savings plan. The main programs -- a Simplified Employee Pension (SEP) IRA and a solo 401(k) -- allow you to sock away pretax savings.

-- Kiplinger's Personal Finance

Back to the top

* * *

Getting That Elusive Biz Loan

When Justin Dees asked Bank of America for a small-business loan, they offered him a credit card instead.

What makes the bank's offer peculiarly lame is that it used the U.S. Small Business Administration's Express Loan program extensively for many years and became the nation's number one small business lender.

But its over-reliance on credit scoring proved to be flawed, resulting in excessive defaults. So according to its local lending officers, the bank is rethinking its approach to small-business lending.

Dees and his partner founded Bradenton-based Sole Source Imports Inc., a two-year old company that started out selling liquid-filled shoe innersoles at flea markets in the Tampa Bay area.

"We decided I would build a simple Web site (and) run a Google Adwords campaign," Dees says. "We now have over 20 (shoe-related) products, multiple vendors, over 15 Web sites, own over 100 domain names."

Even more important for procuring financing, the company's "sales have grown significantly over the past year and to date," says Jon Stuart, a volunteer business counselor with SCORE Manasota, who is mentoring Dees. "We discussed the process of obtaining an SBA loan and the need for building a relationship with a community banker who is more likely to provide access to SBA loans."

Meanwhile, Dees submitted an application with M&I Bank and was turned down.

I asked several folks at M&I why Dees was rejected. Eventually, Gus D. Hernandez Jr., its Florida regional manager of the commercial banking division, e-mailed me back saying that M&I was committed to making small business loans but could not comment on an individual case.

He added, "Banks including M&I, consider a number of criteria when reviewing loan requests, such as the company's business plan, collateral, personal and business credit history, business performance, and business and personal net-worth."

My own observation is that the company is too new and the $50,000 loan request is below the $100,000 minimum requirement for most banks in Southwest Florida.

John Hanlon, a loan officer with Community Bank of Manatee says, "As you know, you spend as much time on a small deal as you do with a $2 million deal." Yet, he made the loan.

"It was not easy to get through loan committee," Hanlon admits. But "the guys did a good job with business plan and projections."

He added that, "Cash flow has been pretty good so far and they have paid their bills; good credit score -- so that helped."

Here is the deal clincher: "They were willing to bring us all business and personal deposits, which is a must these days," Hanlon says. "It's nice to be able to help out some young guys and hope it is a big success story."

Back to the top