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If you’re in the business of originating commercial loans, you know how important it is to protect yourself. A commercial loan fee agreement is one of our most important tools. Going through the long and difficult process of underwriting and closing a commercial loan all to not get paid or only collect a portion of what you expected is one of the more painful and disappointing experiences you can go through in this industry.

We know. We have had several situations where we didn’t get paid, only got a portion of what we were told or did collect our fee, only after getting an attorney involved and going through a long and draining process.

Putting together a deal after hearing the funding bank saying something like “oh, we don’t have formal agreement with brokers, but we’ll pay you a point outside of closing” is like hoping to get paid back that $500 loan you gave to your high drop-out cousin. Sure, there is a chance you’ll get paid back.

Or if you’re working on a deal and not expecting to get any YSP from the bank and you’re depending on the borrower to finally sign that fee agreement, after they know who the bank is and what they are offering, is also a seriously weak position to be.

Unfortunately, we have had both “friends” as well as national lenders that we have work with for years short us at the end of the day. The reasons and stories behind these vary, but bottom-line – if you don’t have your agreement signed and in hand in the beginning of the process you are relying on their kindness to pay you. As my old boss used to say “I won’t walk across the street for a client without a contract”.

The real commercial loans 101 is that they are a reality that every business faces and even more dread to have to contend with. This is usually the case, as they have to find a reliable means of obtaining the funds, finding one that will not kill them with interest rates, and one that is flexible with the amount that is offered and the time frame that the payments are to be made.

In some circumstances, the commercial loans 101 rule is to find an investor so that there are no loans. Yet this does not really solve the problem as much as it presents new problems. The common problems with this is that you now have a second party that is involved with all the choices that are made and this can cause additional complications if the direction that is the business vision does not match their agenda.

Again, the person has to face the reality in commercial loans and what they entail. This can range from a bank loan, a merchant account, or event scouring the commercial and financial worlds for someone that is willing to invest in a company that is either just starting out or trying to expand. Many places and individuals want to be sold on the concept or to have collateral for the loan. These can make a loan a risky choice for some and even a dead end if there is no collateral.

This can bring about the challenge of finding an individual or company that can meet the commercial loan needs. Many times they want to either be involved or have some assurance that there will be a pay back. There are some methods that this can be achieved and these must be addressed by most lenders before they will even consider loaning funds to a cause. The main reason for this is that they do not want to donate funds, but see the money return from a successful loan and the added rates as well.

This can be a very time consuming and frustrating process that can make or break a company during the course of searching and pitching the ideas to the lender. This is time that is spent on hoping and wishing instead of making the strides forward that the owner and the business vision were striving for. The true sad part is that enough time and energy can pass to make this just a fancy and not a reality.

For those small business owners who think they were ignored in the new stimulus bill (American Recovery and Reinvestment Act of 2009), think again. While the debate continues to unravel as to “who gets what and whether it is enough”, one thing is certain: more money is coming in the direction of small businesses through the U.S. Small Business Administration (SBA). Remember, this is the agency responsible for the outreach, licensing, and implementation of, you guessed it, money into the pockets of small businesses. This is done through private licensed lenders who have agreed to join the SBA program. In other words, if your local community bank has a commercial loan department, it might very well have a SBA department which makes these loans. They are called SBA loans because the Federal government will reimburse, to a certain percentage, defaulted loans, thereby giving incentive for the private banks to loan more money. Net effect–more loans will be available for small business concerns. This is a continuing article (20 in all) on the subject: Help. Is anyone out there loaning to small businesses anymore?

Before we talk about how much more money is available to the SBA under the stimulus package, let’s look at the current status of one of the popular SBA loan programs. There is a loan program out there and SBA lenders are actually making loans currently: the Community Express Loan Program. This gives unsecured small business loans between $5,000 and $50,000 with very little paperwork, answers typically in two days, interest rates presently at 7.75%, funding and two weeks, and monies wired directly to your business account. There are still lenders participating in this program, although Congress has failed to make the program permanent and still has a 10% cap on the number of loans.
Enter the Obama stimulus bill. Let us look how it affects this program and small business lending as a whole.

So should we be excited by the stimulus package? Isn’t it all too customary in a new spending bill for a government agency to receive more funds? Not at all as to the SBA. During the Bush Administration tenure, they could easily have renamed the agency the ISBA (Ignore Small Business Association). As they were making “sound bite” statements to the press of how they were helping small business, they were arrogantly trying to dismantle it, or when they were in a better mood, just cutting the budget.

The point is we have a new administration that actually likes small businesses. Remember these are additional monies over and above the SBA’s current budget . As we all know, budgets are determined in approximately March of each year (assuming Congress has the good graces to agree) to be used for the next year. The SBA has already received their budget. This is whipped cream placed on the top of that small business cake.

And we are not talking about token amounts here. Here is how the additional monies are broken down:

1. 375 million for temporary fee reductions or elimination on SBA loans and increased SBA loan guarantees, up to 90% for some loans. Translation: When a borrower gets a SBA loan they pay a SBA loan guarantee fee which goes to Washington and used as a war chest to pay banks if there has been a default. That guarantee fee, depending upon the loan, is currently between 50% and 85%. There is a possibility that some loan programs can now be increased to a whopping 90% guarantee. If a borrower no longer pays these fees, the money has to come from somewhere, and in this case it is taxpayers’ money which is subsidizing those fees.

2. 255 million for a new loan program to help small businesses meet existing debt payments. Translation. You have a loan secured by fixed assets or real estate and want to refinance it, either to lower payments or put more money in your pockets for expansion.

3. 30 million for expanding SBA’s Micro Loan Program, with $6 million to help finance new lending and 24 million for technical assistance grants to Micro lenders. . Translation: Under the Microloan program, the Federal government loans blocks of money to the Microloan lenders who then reloan it, at higher rates, to the deserving communities and small businesses and usually collateral is required.

4. 20 million for streamlining the SBA lending and oversight process with new technology. Translation: The streamlining process will make it faster and more efficient to process loans and oversight is to monitor SBA licensed lenders–make sure they are acting for the benefit of small businesses and complying with the program guidelines.

5. 15 million for expanding SBA’s surety bond guarantee program. Translation: If you are a building contractor and have to take out a performance or payment bond on a project, you need substantial assets to secure the bond. This will help getting your hands on that needed bond and be able to secure the contract.

6. 25 million for staffing as to the new programs.

7. 20 million for the Office of Inspector General. Translation: To inspect and audit the licensed SBA lenders.

Although one could make the argument this new law is “too little too late”, we have to give our current administration a chance to do good things with this fresh money. And don’t forget the mindset of the SBA lender. Although they are not as wildly quixotic as stock market speculators, their purses open and close based upon the mood of the country. We want them to be as comfortable as possible when we walk toward them for money.