Tag Archives: economy

Women Start Businesses – And Keep Them!

According to a report by the Center for Women’s Business Research, majority-women-owned companies generate over $2.8 trillion annually and employ more than 23 million people.

These facts enforce that women-owned companies are not a small, niche market but are a major contributor and player in the overall economy.

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MultiFunding Aims to help Small Businesses Find Loans

The mission of MultiFunding is to help small-business owners and entrepreneurs through the challenges of getting loans and working capital, according to its founder Anne Kassar.

MultiFunding aims to match borrowers with lenders so borrowers get the best loans: the lowest possible price with the best possible terms.

Small-Business Lending Is a Highly Inefficient Market

Few owners have the time to investigate credit markets. The processes are confusing and overwhelming.

Small-Business Lending Is a Confusing Mess

The owner poses  good questions: Why has there been a decrease in lending?  Have the banks stopped making the risky loans they were making before the economic crisis hit? Did they overreact and stop making even sound loans to sound companies? Or did lending drop because after the recession, businesses started to retrench and their demand for credit declined? Did all banks stop lending or was it just the big banks? It is very hard to get definitive answers to these kinds of questions.

One reason is that we can’t even agree on important definitions. The Small Business Administration reports on lending activity, but nobody knows what percentage of overall lending the S.B.A. accounts for. The big banks release their scorecards on small-business lending, but they define small businesses as those with revenue of $20 million or less. For its reports, the Federal Reserve defines small businesses as having revenue of $50 million or less. The  Federal Deposit Insurance Corporation defines small-business loans as those with balances of $1 million or less in its reports. The merchant cash advance lenders and factors do not release reports at all.

Many Small Business Owners Are Still Reeling

Some say that the recession is over and that the economy is on the  mend. However, most small-business owners report that they are still reeling from the recession and struggling to catch up. Working capital is a fight. Banks are not easy to deal with, and fair loans are tough to come by.

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Church Foreclosures on the Rise

Church foreclosures are on the rise throughout the country.

Traditionally, churches were considered solid borrowers with a steady cash flow from donations and tithing. Now congregations are shrinking due to unemployment and the downturn in the economy.  If membership is down and the church has a loan with a large balloon payment, it may be unable to pay and face foreclosure.

Some churches finance through the use of unconventional bonds rather than traditional 30 year mortgages.  The bond underwriters offer up front money if the church will issue compound interest bonds. The bond option typically gives the church an extended term without a payment due.  However, at the end of the term, a very large balloon payment of principal and accrued interest is due. The church may owe as much as double the original amount.

With the value of property down and cash in short supply, many churches will not have the funds to pay off the bonds and will have trouble refinancing.

Nevertheless, Scott Rolfs at Ziegler, an investment bank that helps churches obtain financing says “the easy credit in the mid-2000s” exacerbated church financial problems.  “For 99% of the church-going public in America, their church is coming through the recession just fine.”

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Complications Surrounding Loan Defaults

Lenders continue to experience a large number of loan defaults. After all, the economy has been in an extended period of “recovery” and many homeowners are unable to repay their loans.

Facing the possibility of foreclosure is a scary experience. Many borrowers are panic stricken and gripped by fear and may become increasingly vulnerable to promises and solutions from companies offering impractical solutions that do not include working directly with the lender holding the defaulting loan.

For example, Bella Homes, LLC, a company with an Atlanta presence, is being sued for its ‘foreclosure rescue’ practices. Allegedly, Bella Homes, LLC (“the Company”) would convince homeowners to convey the title to their homes to the Company and thereafter the homeowners would rent or lease their homes from the Company. The Company promised homeowners they would retain an exclusive option to buy back their homes.

The lawsuit alleges that the Company never assumed the mortgages for the properties on which they collected rents and the money never made it to the homeowners’ lenders.

This alleged fraudulent scheme to prey on desperate homeowners indicates a risk for lenders, as well, as the lenders try to resolve defaulting mortgage accounts.

Have you seen anything like this occurring in your area or have you been solicited for similar practices?

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FDIC Quarterly Banking Profile: The Good, The Bad and the Basics

The FDIC just released its Quarterly Banking Profile (“Report”) for the period ending December 31, 2011.

Although, the Report shows a decline in the number of problem institutions compared to recent periods, the number is still elevated compared to historical levels.   Therefore, this decline does not mean that the current banking crisis has passed.

What is a problem institution?

A “problem” institution is a bank that has been rated by the FDIC as either a “4” or a “5” on the agency’s 1-to-5 scale of ascending order of supervisory concern.

How do the current number of problem institutions compare to historical levels?

The Report shows 813 problem institutions compared to 844 at the end of the third quarter and 884 at the end of 2010.  The quarterly decline amounts to a drop of approximately 3.6%.  The 2011 annual decline represents about an 8% drop.

What were the number of problem institutions in 2007 and 2008?

At the end of 2007, there were 76 problem institutions.  At the end of 2008, there were 252 problem financial institutions.

Do a declining number of problem institutions indicate improvement?

Fewer problem institutions is not an indication of a greater number of improving institutions.  In fact, most of the decline is due to problem banks either failing or merging with other banks. The total number of reporting institutions has declined from 8,305 at the end of 2009 to 7,658 at the end of 2010 and only 7,357 at the end of 2011.  The Report does not include information indicating how much of the decline is due to improvement versus other factors overall as this information either has not or cannot be assessed.

What does a decline in the number of bank failures mean?

There has been a decline in the number of bank failures. So far, for the year 2012, there have been only 11 bank failures compared to 23 at this time last year. However, it is difficult to draw a conclusion based on this number. With over 800 problem institutions and banks continuing to fail, it is clear that we are still in a problem period.

What is the good news?

The Report indicates that the overall outlook for the industry is one of recovery, growing net income, declining loan loss provisions, and declines in noncurrent loan balances.

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