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Difficulty getting company loan


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#1 MarcJ

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Posted 02 February 2012 - 07:53 PM

I help manage a small wholesaler of general merchandise our company is family owned and has been in business for over 30 years. Two years ago our bank decreased our line of credit to $800K from $1,500K. My boss does not want to shop around for another bank because he was told nobody is making loans theses days.

Our company lost money in 2008, but brokeeven the last three years. This year we are going to increase our sales with a couple of more accounts and need more credit.Can we get a lona somewhere else?


Marc

#2 loanuniverse

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Posted 03 February 2012 - 09:41 PM

Hi there,

You mentioned that no banks are originating loans. Honestly, this is not what I am seeing. While there are a lot of banks out there that are still working through loan portfolios that are still deteriorating, I see a lot of other lenders coming out of their protective shells and lending again.

There is no way to sugarcoat the fact that banks’ commercial real estate and C&I portfolios have gotten hurt during the last five years. I have seen a noticeable migration from performing to non performing assets during this time, and it has been relentless. In my market, I know some banks are still working through their problem assets by charging off, and selling their OREO and nonperforming notes.

On the other hand, I think we have turned the corner as far as credit availability is concerned. The way I see it, we have three types of banks and they all need to lend.

The profitable banks such as my employer need to continue to lend to keep growth going. Our year end results came out the other day and we put more money to work during 2011 than in any other year before. We also made many millions in our bottom line while maintaining great loan quality. Trust me when I tell you that good news only mean that we need to produce better news next year.

The other types of banks are those that are not really making any money or lost some money during last year. I have several friends working for these type of institutions and the friends that are lenders in other banks tell me that there is a lot of pressure to produce being applied on them. The pressure to lend is higher than in any other time. The reason is simple, you can not turnaround without improving your bottom line.

The only lenders that are not aggressively competing in this market are the zombie banks that because of regulatory issues or just lack of capital can not be a player in commercial lending. You can also trust me when I tell you that commercial lending is much more preferred than residential lending for many lenders.

One thing has changed, it is going to be a lot more difficult to qualify for a commercial loan now than six years ago.

On the C&I side a lot of the subjectivity in the underwriting has been replaced by hard ratio analysis. While there is still some weight to other intangibles, bad or marginal ratios are more likely to adversely impact a request these days.

On the CRE lending side, the appetite for certain types of property is still not there. Some sectors are still showing high double-digits vacancies, but I think the main reason for the low volume is that commercial real estate is not really changing hands much these days.

I think I have rambled on enough, but I wanted to make it clear that while credit standards are tighter, your company can still get a loan. But to give yourselves a chance, you have to prepare. The fact that you have been in business for 30 years is a big plus.

I do not know the reason why the bank reduced the line, I am sure that the loss did not help. However, it could be that the bank determined that you did not need it because business dropped. Maybe all that is needed is to show them that you expect business to bounce back to get the additional availability back.

On the other hand, you might need to test the waters with another lender if your current bank is not receptive. I would prepare a package to shop it around. If I was to underwrite a new loan something like this would be great:

- A few paragraphs introducing the history of the business, what the business sells,and where it sells it.

- A list of your top customers and suppliers with addresses.

- Ownership breakdown and a paragraph on each of the members of management.

- A personal financial statement for the owner(s) and three years of personal tax returns.

- The last three years of financials {income statement and balance sheet}. If they are company prepared get the tax returns also.

- Account Receivable aging and Inventory listing as of the date of the last financial statement and an updated one.

- Include a reason why the current $800M line is not adequate and why you need more. You need to get specific here as it will make your loan easier to sell to whomever has to approve it so if there are new accounts or markets you need to list them.

I hope this helps





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