Owners of privately held middle market companies are all too aware of how solid the credit markets froze in 2008. Precipitated by the demise of such venerable firms as Bear Stearns & Lehman Brothers that coincided with one of the worst recessions ever, banks became risk adverse and miserly.
As things began to stabilize in 2010 banks began to seek higher yielding assets and discontinued their efforts of the prior two years to shrink their balance sheets in order to meet regulatory capital requirements.
Confidence began to spread in the 4th quarter of 2010 as banks regained their appetite for lending to middle market companies and began aggressively courting new customers. Unfortunately timing is everything and with a less than robust economic recovery demand for credit was weak.
Consequently, with less aversion to risk by banks today there is a more than ample supply of credit available for middle market companies with a good business model and outlook. This has translated into lower credit spreads, greater availability and a liberalization of terms and covenants. If the economic recovery continues to gain traction in 2011 it is quite likely there will be further liberalization.
All of the bankers I have spoken to in the last four months report considerable pressure to deploy capital and that asset growth goals have been ratcheted up. All in all this should bode well for middle market companies in 2011.
SBA Guaranteed Loans – An Often Overlooked Source of Capital
Credit availability still remains tenuous at best for companies at the lower end of the middle market, those that have revenues of less than $25 million. Banks are not yet embracing this segment of the market because the greater perceived risk. To mitigate this risk there is another financing option business should consider if they are eligible for a loan guaranteed through one of the various loan programs of the U.S. Small Business Administration (SBA).
Generality, to qualify a company must have less than $15 million in tangible net worth and net income after taxes of less than $5 million for the past two years. There is a checklist of the documents on the SBA’s website that will be needed to assemble when applying for an SBA guaranteed loan.
In the March 2011 issue of the Journal of Accountancy there was an excellent article written by Ron Box entitled “How to Land an SBA Loan” which examines all of the SBA’s various loan programs that enable companies to avoid meeting traditional bank underwriting standards.