Commercial Loans Blog

How Good Does My Credit Score Have To Be To Qualify For an SBA Loan?

Posted by George Blackburne on Sun, Nov 11, 2018

SBA LoanDoes the SBA have a minimum credit score?  What if I was forced to declare bankruptcy during the Great Recession?  Is it still possible for me to get an SBA loan?

You will recall that the Small Business Administration does not make commercial loans.  Instead, the SBA merely guarantees a portion of certain commercial loans secured by commercial real estate and/or business equipment.  I want you to please remember that word, "portion".  We are going to come back to it later in this training lesson.

 

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So an SBA loan request came into C-Loans.com this week.  C-Loans.com is a commercial loan portal where commercial mortgage borrowers can quickly create a commercial loan application and then submit that same mini-app to 750 different commercial lenders.  If six lenders turn your deal down, within seconds you can ship off your commercial loan application to six more lenders.  You continue this until finally some commercial lender says, "Yes."

Now this SBA loan applicant was a physician.  He was trying to buy a medical office building, but the problem was that he had declared bankruptcy less than two years earlier.  Could he get an SBA loan?  What was the SBA's minimum credit score?  I honestly didn't know.

 

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So I posed this question to some buddies of mine who specialize in SBA loans, and here are their replies:

Scott Coleman, the Business Development Officer for Harvest Small Business Finance, replied, "The minimum credit score to obtain an SBA loan from Harvest is 600.  Past bankruptcies must be at least three years old."

 

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Erik Shorey, a Credit Analyst for Celtic Bank, replied, "As to credit scores, I would say that applicants with credit scores of 640 or below are going to have an issue; but such (low scores) are not always a deal killer.  Bankruptcies get really tough regardless.  The SBA says that they need to be discharged by at least 24 months I believe.  We have done a couple, but its few and far between."

Riley Risto, a Vice President for Gulf Bank, replied, "The SBA does not take a formal position on either bankruptcy or credit score minimums.  These decisions are left to the lender within the bounds of prudent lending.  The only requirement is that the lender spell it out in their credit policy and apply the policy uniformly."

Thank you, guys!

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Now its time to go back and revisit the word, "portion", in the expression, "the SBA merely guarantees a portion of certain commercial loans..."  The SBA does not guarantee the entire loan.  Under the 7(a) guaranteed loan program, the SBA typically guarantees from 50% to 85% of an eligible bank loan.  If a borrower defaults and the lender takes a loss on the loan, it submits the loss to the SBA to honor its guarantee. The SBA guarantees up to 85% on loans of $150,000 and less, and up to 75% on loans over $150,000.

So if a bank makes a $1,000,000 SBA loan, and it ends up losing $400,000, the bank will submit the $400,000 loss to the SBA to honor its guaranty.  Because the original loan was over $150,000, the SBA will reimburse the bank for just 75% of the $400,000 loss; or, in this case, $300,000.  The bank will have to eat a $100,000 loss.

 

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The reason this is important is that the lender making the SBA loan, often but not always commercial bank, stands to lose some serious dough if an SBA loan goes bad.  Therefore different Loan Committees at different SBA lenders will perceive the risk differently.

An SBA loan applicant could easily be turned down by 40 SBA lenders, only to get funded by the 41st SBA lenders.  For example, maybe the loan was to upgrade an old, money-losing bowling alley with new equipment.  A member of the 41st lender's Loan Committee might have a brother in bowling alleys.  "Oh, I know that Brunswick equipment.  It's such a pleasure to use.  Your borrower is going to smoke the competition."

 

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So if you have an SBA loan, you might have to submit that SBA loan request to dozens of different SBA lenders.  Gee, if there was only an easy way to submit commercial loans to dozens and dozens of different lenders...  Hellooo?  C-Loans has 218 different SBA lenders!

 

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Topics: SBA Credit Scores

Is China's Authoritarian Capitalism Better Than Liberal Democracy?

Posted by George Blackburne on Sat, Nov 3, 2018

Cultural revolution"China is already challenging the US for technological and geopolitical primacy and flaunting its authoritarian capitalism as an alternative to democracy.  Communism couldn’t pose a credible challenge to liberal democracy, but authoritarian capitalism might.  In that sense, China’s model represents the first major challenge to liberal democracy since the rise of Nazism.” — Brahma Chellaney, Project Syndicate

Authoritarian capitalism is characterized by the enforcement or advocacy of strict obedience to the authority of the state at the expense of personal freedom, coupled with an economic system in which trade and industry are controlled by private owners for profit, rather than by the state.

 

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Authoritarian capitalism has been tried at least three times in the modern era, and each time it has worked pretty well, for awhile at least.  Is authoritarian capitalism, in fact, better than liberal democracy?

By 1922, the Russian Civil War (1918-1922) had reduced the economy of Soviet Russia to tatters.  Vladimir Lenin therefore implemented the New Economic Policy (“NEP”) as a temporary expedient.  Lenin characterized the NEP in 1922 as an economic system that would include "a free market and capitalism, both subject to state control", while socialized state enterprises would operate on "a profit basis". 

 

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The NEP represented a more market-oriented economic policy to foster the economy of the country, which had suffered severely since 1914.  The Soviet authorities partially revoked the complete nationalization of industry (established during the period of War Communism of 1918 to 1921) and introduced a system of mixed economy which allowed private individuals to own small enterprises, while the state continued to control banks, foreign trade, and large industries.  In addition, the NEP abolished forced grain-requisition and instead introduced a tax on farmers, payable in the form of raw agricultural product.

The result? The Russian economy rebounded strongly.  Food production, for example, soared because Russian farmers were now allowed to sell some of their production for cash and thereby had an incentive to produce more.  Unfortunately for the Russian people, Lenin died in 1924, and Joseph Stalin discontinued the program in 1928.

 

 

 

 

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In 1932, in the dying days of the Weimar Republic in Germany, 5.6 million Germans were unemployed – many of whom gave their support to the Nazi Party as the only party that offered them hope.  By 1934, this unemployment figure had fallen to 2.7 million – a seemingly impossible decrease.  By 1936, only 1.6 million people were unemployed, and by 1938 the figure was 0.4 million. Therefore in five years, unemployment had fallen by 5.4 million – 96%.  No other west European country came anywhere near this figure – hence it was labelled the “German economic miracle".

In 1990 the GDP of China was just $360 billion.  By 2017, the Chinese GDP had skyrocketed to $12.24 trillion - that's trillion with a "T".  A reasonable man might ask, "Is authoritarian capitalism a better economic system than social democracy?"  Well, we can reasonably say that its a heck of a lot better than pure communism.

 

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We'll never know how well Lenin's New Economic Policy would have performed in the long run because Joseph Stalin terminated the policy in 1928.  The kulaks were the high-income farmers of Russia.  In 1929 Stalin ordered the elimination of the kulaks as a class, and 1.3 million kulaks were deported, starved to death, and murdered.  This kind of casts a pall over the term, "authoritarian".

The German economic miracle was not quite what it seemed either.  First of all, between 1933 and 1939, a series of laws were passed that effectively made it impossible for Jews to hold a job in Germany.  As Jews fled Germany, they left behind jobs that were eventually filled by the unemployed.

 

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Women were also excluded by the Nazi's from many areas of work, creating more job opportunities for men.  Aryan women were expected to stay home and make babies.

While many millions of more Germans men found jobs, their average rate of pay in the middle 1930's was considerably less than before the 1929 Stock Market Crash.  Staying home unemployed was not an option either.  If you chose not to accept a low-paying, manual labor job on the autobahns, you risked being labeled as "work shy" and sent away to a concentration camp.

 

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Lastly, and most importantly, Germany was rearming.  In 1933, Germany spent just 3% of their GDP on defense.  By 1939, 32% of Germany's GDP was spent on their military build-up, and 22% of all German workers were employed in some form of defense work or steel production.

In the past thirty years, the Chinese Communist Party has made a concerted effort to interfere as little as possible with the growth of capitalism in China.  During the Cultural Revolution, which lasted from 1966 to 1976, however, the opposite was true.

 

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The Cultural Revolution was launched in May 1966, after Mao alleged that bourgeois elements had infiltrated the government and society at large, aiming to restore capitalism.  To eliminate his rivals within the Communist Party of China, Mao insisted that these "revisionists" be removed through violent class struggle.

China's youth responded to Mao's appeal by forming Red Guard groups around the country.  The movement spread into the military, urban workers, and the Communist Party leadership itself.  It resulted in widespread factional struggles in all walks of life.  There was a mass purge of senior officials.

 

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In the violent struggles that ensued across the country, millions of people were persecuted and suffered a wide range of abuses, including public humiliation, arbitrary imprisonment, torture, hard labor, sustained harassment, seizure of property and sometimes execution.  A large segment of the population was forcibly displaced, most notably the transfer of urban youth to rural regions.

Mao officially declared the Cultural Revolution to have ended in 1969, but its active phase lasted until the death of military leader and proposed Mao successor, Lin Biao, in 1971.  After Mao's death and the arrest of the Gang of Four in 1976, reformers led by Deng Xiaoping gradually began to dismantle the Maoist policies associated with the Cultural Revolution.  In 1981, the Party declared that the Cultural Revolution was "responsible for the most severe setback and the heaviest losses suffered by the Party, the country, and the people since the founding of the People's Republic".  (Source: Wikipedia)

 

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Bottom line:  The "capitalism" part of the term, "authoritarian capitalism", seems to work very well.  Its the "authoritarian" part that seems to always spoil the party - in a very bloody way.

 

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Topics: Authoritarian capitalism

Receive Commercial Loan Leads From CMDC For Just $1,000 Per Year

Posted by George Blackburne on Thu, Nov 1, 2018

Screen Shot 2018-11-01 at 1.30.56 PMWe just completed an extensive upgrade to CommercialMortgage.com ("CMDC") that now allows us to immediately deliver commercial loan leads directly to commercial lenders and commercial mortgage companies by email.  The cost to receive these leads is only $1,000 per year.

The cost of $1,000 per year is absurdly cheap. Any commercial lender who has ever paid for Google Adwords or display ads in digital magazines or e-zines will tell you that his company paid MUCH more than $1,000 per year.

You will receive these commercial loan leads instantly, so you can catch the borrower while he is still sitting in front of his computer.  Here is what a sample lead looks like:

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Guys, please don't call this lead.  I appreciate your work ethic, but its just an imaginary sample lead.  Please note that imaginary borrower is me.  Watch, I'll still get three or four calls.  "Hey, I hear you need a $1.5MM loan on an industrial building in New York."  Ha-ha!

When a commercial lender advertises on Google Adwords or in some digital magazine, the commercial loan leads are likely to be pretty poor.  Why?  Because there is no way to fine tune the leads that he's receiving.  A commercial lender might pay Google $3,000 per month, only to get leads like a $42,000 bridge loan on a commercially-zoned house in Detroit or a $2 million mezzanine loan on a parking garage in Maine.

When you advertise on CommercialMortgage.com, you get to specify the exact type of commercial loan leads that you want to receive.  For example, if you only make bridge loans on the four basic food groups, plus hospitality, in the five states located close to New York City, from $1 million to $15 million, this is exactly the type of commercial loan leads that you will receive.  (The four major food groups are multifamily, office, retail, and industrial.)

If you are unfamiliar with CommercialMortgage.com ("CMDC"), this commercial mortgage portal contains a searchable list of 3,159 different commercial lenders.  By the way, I paid $100,000 to get that wonderful domain name, CommercialMortgage.com.  The vast majority of these commercial lenders are commercial banks.

Here is what the search results look like:

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The site is 100% free to use by borrowers, mortgage brokers, and commercial brokers.  The banks listed do NOT increase their loan fee to pay any fee to C-Loans, Inc., the owner of CommercialMortgage.com.  Banks and credit unions get a free listings.  Until now, no other commercial lenders could gain a listing on CMDC - only banks and credit unions were allowed to join.

Dr. EvilAs a result, there are very few competing bridge lenders listed on the portal.  This lack of competition for bridge loans should be very good news for bridge lenders who are considering an investment of - gasp - $1,000 per year to receive a steady supply of pre-qualified bridge loan leads.  (Can anyone guess why I have added the picture of Dr. Evil here?  We will hold the world to ransom for - gasp - $1 million!  Ha-Ha!)  How much do you make if you close a deal?  And remember, unlike on C-Loans.com, you do NOT owe us 50 bps. if you close a deal.  (If your boss will never authorize an investment of $1,000; you can always join C-Loans.com for free.)

The cost to receive these leads is $1,000 per year per loan type.  For example, if your hard money mortgage company makes both permanent loans and bridge loans, the cost to receive permanent commercial loan leads would be $1,000 per year, and the cost to receive bridge loan leads would be another $1,000 per year.

Small bridge loan lenders will be disappointed to learn that we do NOT sell permanent loan and bridge loan leads of less than $1 million.  There are reserved for Blackburne & Sons, my own hard money shop.  Between loans fees and loan servicing income, I make over $300,000 on a loan of $1 million.  Blackburne & Sons, however, doesn't make either permanent loans or bridge loans larger than $1 million, so these are the leads that are available.

What if you are an SBA lender?  Yes, you can buy the smaller SBA and USDA leads.  Blackburne & Sons does not make SBA loans, USDA loans, or construction loans of any size.

What if you are commercial mortgage broker?  Can you get listed on CMDC for $1,000 per year?  Only if you do not call me up and ask a lot of questions.  If $1,000 per year is a lot of money to you, you are just not the size of commercial mortgage company that I would allow to slip onto CMDC.  Moral of the story:  If you are a small operation, do NOT call George.  Just send in your dough.

Owners of hard money shops and approved SBA lenders are, of course, absolutely invited to call me, the old man, George Blackburne III, at 574-360-2486.

Now there is a bit of a race going on.  Let's look again at the results of a Lender Report:

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Do you see the the section above entitled Recommended Lenders?  Blackburne & Sons will, on perm's and bridge loans of less than $1 million, always be listed first.  After that, the order depends on how soon you send in your dough.  Red Star Mortgage has already sent in their dough, so on deals larger than $1 million, they will be listed first.  The next lender to send in his dough gets listed second, etc.  (Remember, this update to CMDC that allow us to send leads out to lenders was just completed last night, November 1, 2018.)

Next year, if Red Star doesn't renew, then the #2 lender moves into the #1 spot, and every renewing lender moves up one place.

Fair warning.  If the site takes off, and a new lender offers me $1,500 per year, he grabs the #1 spot.  I will probably just go up in $500 increments.

Let's suppose you're sold.  You've known of 'ole George Blackburne III for decades, and you trust that he is proven rainmaker.  If so, you need to rush your check or wire, made payable to C-Loans, Inc., to Justine Manzo, our Controller, at 4811 Chippendale Drive, Suite 101, Sacramento, CA 95841.  Justine's number is 916-338-3232.

 

 

Topics: commercial leads