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Study Finds Certified Financial Statements Help Businesses’ Loan Prospects

Small businesses whose books are audited—by a hired certified public accountant, not the Internal Revenue Service—improve their chances of getting a loan, and at far better terms, than businesses with less scrutinized financial statements, a new study shows.

Yet even as owners continue to struggle with tight credit, few can afford the time, effort or cost of preparing complex financial statements, let alone having them audited, small-business owners, lenders and accountants say.

“Banks love when you have audited financials because they view it as a form of insurance,” says Buzz Rose, a certified public accountant in Pittsburgh. “But audits have become very expensive and to have one done ‘just in case’ would seem to be a waste of time and money.”

But the benefits might outweigh the costs.

Based on data from more than 10,000 closely held companies—about half of which have less than 500 employees—a study by the University of Chicago Booth School of Business found audited businesses save an average of $6,900 for every $1 million in outstanding debt every year as a result of lower interest rates, which were more than half a percentage point below rates paid by nonaudited businesses. For a loan of $3.3 million, the average size of loans analyzed in the study, the savings was about $23,000.

A small-business audit costs anywhere from $5,000 to $75,000, depending on the size of the company, the complexity of its data and other factors—typically double the cost of a financial statement review, the next highest level of CPA-verified assurance after an audit.

An audit provides third-party assurance that a company’s financial statements are correctly prepared and based on verified business data, while a review shows the statements are at least internally consistent with data provided by management.

“There appears to be a very real cost benefit to getting an audit, beyond the obvious value of having your financial statements in order,” says Michael Minnis, a Booth School assistant professor of accounting who led the study. The Booth School study is expected to be published in the Journal of Accounting Research in May.

Similarly, a joint study last year by Michigan State University and Indiana University found small businesses with audited financial statements were “significantly less likely” to be denied credit from banks.

David Leuthold, chief executive of Century Negotiations Inc., a North Huntingdon, Pa., consumer-debt settlement firm, says he started having his books audited annually in 2005 to double-check his own bookkeeping, paying about $8,000 an audit. The move paid off when he applied for a $100,000 line of credit the following year.

“The bank required audited financial statements,” says Mr. Leuthold, whose company made $8 million in revenue last year. Even without audited books, he believes the bank might have approved the loan, though at less favorable terms. “We had what they wanted, so it was definitely worth it,” he says.

Still, for many small businesses seeking a loan, lenders say an audit is costly and unnecessary.

“Audits provide good information. The more concrete information a lender can get, the better,” says Tom Burke, the director of Wells Fargo’s Small Business Administration lending division. But he questioned the necessity of audits for every business.

Mr. Burke says a business with less than $1 million in annual revenue can ask a CPA to prepare a compilation, which is a cheaper, unaudited financial statement based on recorded sales, inventory and other data. Since owners often use these statements to manage daily operations—and they’re prepared by CPAs—lenders have some assurance of the statements’ accuracy in making loan decisions.

“I’d hate to see people taking steps that aren’t necessary, or that they can’t afford,” Mr. Burke says.

Small-business accountant David Wilke, of Carnegie, Pa., says he helps borrowers and lenders negotiate loan terms based on mutually acceptable levels of assurance, ranging from compilations to audits. He says a CPA “adds value by determining what a bank wants and what a business can provide at an early stage,” rather than trying to convince every client to get audited.

Mr. Rose, the accountant in Pittsburgh, says it’s only worth going through an audit—which can require days and even weeks of a manager’s time—when a business owner has a loan in hand that’s contingent on providing audited financial statements.

Audited or not, less than a quarter of businesses with fewer than 500 employees keep financial statements of any kind, according to the Federal Reserve Board’s National Survey of Small Business Finances.

“There’s a lot of criticism that it’s expensive and difficult to prepare and audit your financial statements,” says Teri Yohn, an Indiana University associate professor of accounting who sits on the Financial Accounting Foundation’s blue-ribbon panel on private-company accounting standards. “But there are clearly benefits.”

Write to Angus Loten at angus.loten@wsj.com

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Why? That’s a great question and we’re glad that you asked!

Answer: Expect More SBA Loans In 2011

Small-business trends will be influenced this year by passage of the Small Business Jobs Act of 2010 (H.R. 5297).

According to the SBA, the new law provides approximately $30 billion to small banks (those with less than $10 billion in assets) for lending to small businesses, offers approximately $12 billion in tax breaks to small businesses and expands the loan limitations of the SBA.

For women-owned businesses, there may be even more loan opportunities. Banks may be able to offer credit to small businesses that might not have qualified previously. (According to the SBA, in the first week of the Small Business Jobs Act, the agency provided nearly 2,000 loans totaling nearly $1 billion.) State funding programs and community banks also will receive more federal dollars to lend to small businesses. And the law provides $50 million in grants to Small Business Development Centers to fund counseling and training.

The following is a more detailed look at the trends this new law may inspire in 2011:

1.Increased business lending. Two things will influence this trend: 1) businesses will start asking for credit again and 2) SBA dollar volume is expected to increase. At the annual conference of SBA lenders in Anaheim last fall, executives predicted that the volume of loans will double in 2011. More businesses will be willing to make investments and borrow money, and banks are more willing to lend when they can make use of SBA risk enhancements such as guaranteed loans.

2.Enhanced renewable energy lending programs. In 2011, expect more small businesses to make improvements such as adding energy-saving solar panels to their businesses. Some banks will offer specialized programs to incorporate solar-panel improvements into SBA loans. This applies not just to large businesses but smaller ones as well. They’ll be able to save energy by using solar to heat and power their businesses.

3.Revised refinancing. Now may be the time for small businesses to refinance real estate loans. The new law allows SBA 504 loans to be used for refinancing real estate loans on owner-occupied commercial property. The SBA also has increased the maximum 504 loan amount to $5 million ($5.5 million for manufacturers and energy loans), and waived fees for banks and borrowers.

4.Increased exporting. The new law offers various incentives for small businesses to export goods, including turning a pilot loan program into a permanent program with 90 percent guarantees for loans up to $350,000. Loans between $350,000 and $500,000 receive 75 percent guarantees.

5.Increased certification for government contracts. The new law strengthens small businesses’ ability to compete for federal contracts. Women-owned businesses that are certified can compete for federal and state government contracts. Government agencies award millions of dollars in contracts to small businesses every year. See the SBA website for details.
Heather Endresen is senior vice president, manager of SBA and government lending for Union Bank

http://www.foxbusiness.com/personal-finance/2010/12/20/expect-sba-loans/

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In the just-released construction equipment “business outlook” survey of the Association of Equipment Manufacturers (AEM):
Construction machinery manufacturers predict overall business in the United States to close out 2010 with 6.4-percent growth, then gain 12.7 percent in 2011 and 14.8 percent in 2012, followed by 2013 growth of 13 percent.
Canadian business overall is expected to be 8.2 percent higher in 2010 than the previous year, and record gains of 12 percent in 2011, 14.8 percent in 2012 and 12.7 percent in 2013.
Industry business to the rest of the world is anticipated to be strongest in 2010 – up by 14.7 percent – and then grow 11.8 percent in 2011, 12.5 percent in 2012 and 11.2 percent in 2013.
“While this rebound is welcome, you have to remember our industry was down 30 to 50 percent in the recession, so there is a long way to go. Although business is improving, it will take years to recover the sales losses of 2008-2009,” said AEM President Dennis Slater.
“This hopeful outlook will be difficult to achieve without action now on transportation infrastructure legislation and export-promotion policies. Infrastructure investment and export agreements are proven ways to create and maintain jobs for U.S. workers, for a sustainable recovery and meaningful uptick in equipment demand,” Slater said.
AEM is the North American-based international trade group representing the off-road equipment manufacturing industry.

Each business-activity forecast is the average of responses from manufacturers in each product line, predicting industry-wide expectations rather than individual company performance, and unit sales rather than company profitability. For more information, visit www.aem.org in the market information section.
The survey asked respondents to rank how several factors would influence sales. Not surprisingly, a key impediment to growth in the construction equipment industry is the stagnant housing market. The general economy, including credit availability, also continues to be a major factor, as is highway funding. The brightest spot is increased export demand.
“The housing market is still very weak, stimulus-funded projects are nearing an end, and state and local budgets continue to shrink. Unemployment in the manufacturing sector remains stubbornly high. In construction, unemployment is still about double the national average; for example, construction unemployment was 18.8 percent for November 2010,” Slated noted.
“Congress and the Administration need to put bipartisan differences aside and finally pass a long-term federal transportation funding bill. Repairing the infrastructure will improve U.S. competitiveness globally by providing a more efficient, safer and reliable system to move U.S. goods to market,” Slater said.
“Export sales have helped many U.S. manufacturers keep their doors open, and thus able to provide American jobs and support American communities. Eliminating trade barriers that prevent American manufacturers from selling their products in new markets is vital for a healthy and growing economy,” said Slater.
“The recent U.S.-Korea export-promotion agreement is an encouraging sign, and we urge Congress to take swift action to enact this policy as well as pass the export-promotion agreements still pending with Colombia and Panama,” he added.
Slater summarized: “The Administration and Congress need to truly focus on national policies that keep manufacturing strong, policies that create the certainty manufacturers need to invest and hire. A robust American manufacturing sector is necessary so our economy can compete with other countries and our equipment manufacturers are able to prosper and grow right here in the United States. Until these things are done, America’’s economy will suffer and our competitive position in the world will be threatened.”
Slater noted that AEM is advancing job-creation messages through its “I Make America” campaign and in cooperative efforts with allied industry and business groups, including the “Start Us Up USA.”

http://www.constructionequipmentguide.com/AEM-Manufacturers-Predict-Modest-Upticks-in-Business-Through-2013/15376/newsletter/

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Release No. 10-72

WASHINGTON – With small business owners and entrepreneurs in traditionally underserved
communities continuing to face challenges accessing capital, the U.S. Small Business
Administration today announced two new initiatives aimed at increasing SBA-backed loans to
small businesses in these markets.

SBA Administrator Karen Mills also today named Catherine L. Hughes, chairperson and founder
of Radio One, Inc., and a former SBA borrower, to chair the agency’s new Advisory Council on
Underserved Communities.

SBA and U.S. Department of Commerce studies have shown the importance of lower-dollar
loans to small business formation and growth in underserved communities. With that in mind,
the two new loan initiatives – Small Loan Advantage and Community Advantage – are aimed
at increasing the number of lower-dollar SBA 7(a) loans going to small businesses and
entrepreneurs in underserved communities. The agency’s most popular loan product, 7(a)
government-guaranteed loans can be used for variety of general business purposes, including
working capital and purchases of equipment and real estate.

In conjunction with the implementation of these two new Advantage loan initiatives by March
15, the agency will end its existing Community Express pilot loan program on April 30.
“Over the last two years, we’ve seen lending to all small businesses tighten up, and that
tightening has been even greater in traditionally underserved communities, including among
minorities, women and in rural areas,” SBA Administrator Karen Mills said. “These new
Advantage initiatives are aimed directly at getting more loans into these markets so these small
business owners can get the capital they need to start or grow their business and create good
paying jobs in local communities across the country.”

Built on what the agency refers to as its “Advantage” platform, both Small Loan Advantage and
Community Advantage will offer a streamlined application process for SBA-guaranteed 7(a)
loans up to $250,000. These loans will come with the regular 7(a) government guarantee, 85
percent for loans up to $150,000 and 75 percent for those greater than $150,000.

Small Loan Advantage will be available to the 630 financial institutions across the country in the
agency’s Preferred Lender Program (PLP). Under PLP, which includes most of the agency’s
highest volume lenders, SBA delegates the final credit decisions to lenders.
With Community Advantage, the agency will expand the points of access small business owners
have for getting loans by opening SBA’s 7(a) loan program to “mission-focused” financial
institutions, including Community Development Financial Institutions, Certified Development
Companies and non-profit microlending intermediaries. Community Advantage will leverage the
experience these institutions already have in lending to minority, women-owned and start-up
companies in economically challenged markets, along with their management and technical
assistance expertise, to help make their borrowers successful.

“These two new loan initiatives tackle a couple of factors we know exist when it comes to the
challenges small business owners face,” Mills said. “First, to add more incentive for lower-dollar
loans in these communities, we are providing a streamlined process for lenders along with the
regular 7(a) government guarantee. Second, we are taking steps that will increase the number of
places small business owners in underserved communities can go to get loans. And also, with
Community Advantage, we are making sure that the additional assistance some borrowers may
need through counseling and technical assistance will be available.”

Mills added that the new loan initiatives are in line with the agency’s core mission of supporting
small business growth and job creation, and goals of the new Advisory Council on
Underserved Communities, announced today. The Council will provide input, advice and
recommendations on how SBA through its programs can help strengthen competiveness and
sustainability for small businesses in underserved communities.

“Many entrepreneurs and small business owners across the country have enormous potential to
drive economic growth and create good-paying jobs in their local communities, but too often
they face barriers in fulfilling that potential,” said Hughes, who will chair the council. “I’m
excited to be a part of this effort to strengthen the link between these entrepreneurs and the
SBA’s wide variety of resources. SBA assistance played a critical role in my success, and I’m
eager to do all I can to help make sure others have access to these same opportunities.”
The agency’s new Advisory Council on Underserved Communities will consist of 20 members
from across the country. Over the next few weeks, the SBA will accept nominations for members
to serve on the CUC. Members will provide a critical link between SBA and small businesses in
traditionally underserved communities. It is anticipated that members will reflect a variety of key
sectors, including business owners, banking and finance, community development, nonprofit and
academia. Member nominations can be emailed to underservedcouncil@sba.gov.

A Nebraska native, Hughes began a career in radio in 1969 at KOWH, a small black-owned
radio station in Omaha. She came to Washington, D.C., as a lecturer at Howard University’s
School of Communications, and worked at several local radio stations before she and then her
husband purchased a small D.C. station and turned it into Radio One. Later, Hughes bought out
her husband and became sole owner, at one point moving into the station to make ends meet.
Today, Radio One owns 52 radio stations in major markets across the country, making the
company the largest black-owned radio chain in the nation. In January of 2004, Hughes launched
TV One, a cable television channel targeted at the African American community.
###

http://www.sba.gov/news

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2010 list of failed banks

Failed bank	Date closed	Estimated cost to DIF ($millions)
Earthstar Bank, Southampton, PA	12/10/2010	22.9
Paramount Bank, Farmington Hills, MI	12/10/2010	90.2
First Banking Center, Burlington, WI	11/19/2010	142.6
Allegiance Bank of North America, Bala Cynwyd, PA	11/19/2010	14.2
Gulf State Community Bank, Carrabelle, FL	11/19/2010	42.7
Copper Star Bank, Scottsdale, AZ	11/12/2010	46.3
Darby Bank & Trust Co., Vidalia, GA	11/12/2010	136.2
Tifton Banking Company, Tifton, GA	11/12/2010	24.6
First Vietnamese American Bank, Westminster, CA	11/5/2010	9.6
Pierce Commercial Bank, Tacoma, WA	11/5/2010	21.3
Western Commercial Bank, Woodland Hills, CA	11/5/2010	25.2
K Bank, Randallstown, MD	11/5/2010	198.4
First Arizona Savings, Scottsdale, AZ	10/22/2010	32.8
Hillcrest Bank, Overland Park, KS	10/22/2010	329.7
First Suburban National Bank, Maywood, IL	10/22/2010	31.4
The First National Bank of Barnesville, Barnesville, GA	10/22/2010	33.9
The Gordon Bank, Gordon, GA	10/22/2010	9.0
Progress Bank of Florida, Tampa, FL	10/22/2010	25.0
First Bank of Jacksonville, Jacksonville, FL	10/22/2010	16.2
Premier Bank, Jefferson City, MO	10/15/2010	406.9
WestBridge Bank and Trust Company, Chesterfield, MO	10/15/2010	18.7
Security Savings Bank F.S.B., Olathe, KS	10/15/2010	82.2
Shoreline Bank, Shoreline, WA	10/1/2010	41.4
Wakulla Bank, Crawfordville, FL	10/1/2010	113.4
Haven Trust Bank Florida, Ponte Verde Beach, FL	9/24/2010	31.9
North County Bank, Arlington, WA	9/24/2010	72.8
Maritime Savings Bank, West Allis, WI	9/17/2010	83.6
Bramble Savings Bank, Milford, OH	9/17/2010	14.6
The Peoples Bank, Winder, GA	9/17/2010	98.9
First Commerce Community Bank, Douglasville, GA	9/17/2010	71.4
Bank of Ellijay, Ellijay, GA	9/17/2010	55.2
ISN Bank, Cherry Hill, NJ	9/17/2010	23.9
Horizon Bank, Bradenton, FL	9/10/2010	58.9
Sonoma Valley Bank, Sonoma, CA	8/20/2010	10.1
Los Padres Bank, Solvang, CA	8/20/2010	8.7
Butte Community Bank, Chico, CA	8/20/2010	17.4
Pacific State Bank, Stockton, CA	8/20/2010	32.6
ShoreBank, Chicago, IL	8/20/2010	367.7
Imperial Savings and Loan Association, Martinsville, VA	8/20/2010	3.5
Independent National Bank, Ocala, FL	8/20/2010	23.2
Community National Bank at Bartow, Bartow, FL	8/20/2010	10.3
Palos Bank and Trust Company, Palos Heights, IL	8/13/2010	72
Ravenswood Bank, Chicago, IL	8/6/2010	68.1
LibertyBank, Eugene, OR	7/30/2010	115.3
The Cowlitz Bank, Longview, WA	7/30/2010	68.9
Coastal Community Bank, Panama City Beach, FL	7/30/2010	94.5
Bayside Savings Bank, Port Saint Joe, FL	7/30/2010	16.2
Northwest Bank and Trust, Acworth, GA	7/30/2010	39.8
Home Valley Bank, Cave Junction, OR	7/23/2010	37.1
Southwest USA Bank, Las Vegas, NV	7/23/2010	74.1
Community Security Bank, New Prague, MN	7/23/2010	18.6
Thunder Bank, Sylvan Grove, KS	7/23/2010	4.5
Williamsburg First National Bank, Kingstree, SC	7/23/2010	8.8
Crescent Bank and Trust Company, Jasper, GA	7/23/2010	242.4
Sterling Bank, Lantana, FL	7/23/2010	45.5
Mainstreet Savings Bank FSB, Hastings, MI	7/16/2010	11.4
Olde Cypress Community Bank, Clewiston, FL	7/16/2010	31.5
Turnberry Bank, Aventura, FL	7/16/2010	34.4
Metro Bank of Dade County, Miami, FL	7/16/2010	67.6
First National Bank of the South, Spartanburg, SC	7/16/2010	74.9
Woodlands Bank, Bluffton, SC	7/16/2010	115
Home National Bank, Blackwell, OK	7/09/2010	78.7
USA Bank, Port Chester, NY	7/09/2010	61.7
Ideal Federal Savings Bank, Baltimore, MD	7/09/2010	2.1
Bay National Bank, Baltimore, MD	7/09/2010	17.4
High Desert State Bank, Albuquerque, NM	6/25/2010	20.9
First National Bank, Savannah, GA	6/25/2010	68.9
Peninsula Bank, Englewood, FL	6/25/2010	194.8
Nevada Security Bank, Reno, NV	6/18/2010	80.9
Washington First International Bank, Seattle, WA	6/11/2010	158.4
TierOne Bank, Lincoln, NE	6/04/2010	297.8
Arcola Homestead Savings Bank, Arcola, IL	6/04/2010	3.2
First National Bank, Rosedale, MS	6/04/2010	12.6
Granite Community Bank, NA, Granite Bay, CA	5/28/2010	17.3
Bank of Florida — Tampa, Tampa, FL	5/28/2010	40.3
Bank of Florida — Southwest, Naples, FL	5/28/2010	91.3
Bank of Florida — Southeast, Fort Lauderdale, FL	5/28/2010	71.4
Sun West Bank, Las Vegas, NV	5/28/2010	96.7
Pinehurst Bank, Saint Paul, MN	5/21/2010	6
Midwest Bank and Trust Company, Elmwood Park, IL	5/14/2010	216.4
Southwest Community Bank, Springfield, MO	5/14/2010	29
New Liberty Bank, Plymouth, MI	5/14/2010	25
Satilla Community Bank, Saint Marys, GA	5/14/2010	31.3
1st Pacific Bank of California, San Diego, CA	5/07/2010	87.7
Towne Bank of Arizona, Mesa, AZ	5/07/2010	41.8
Access Bank, Champlin, MN	5/07/2010	5.5
The Bank of Bonifay, Bonifay, FL	5/07/2010	78.7
Frontier Bank, Everett, WA	4/30/2010	1,370
BC National Banks, Butler, MO	4/30/2010	11.4
Champion Bank, Creve Coeur, MO	4/30/2010	52.7
CF Bancorp, Port Huron, MI	4/30/2010	615.3
Westernbank Puerto Rico, Mayaguez, PR	4/30/2010	3,310
R-G Premier Bank of Puerto Rico, Hato Rey, PR	4/30/2010	1,230
Eurobank, San Juan, PR	4/30/2010	743.9
Wheatland Bank, Naperville, IL	4/23/2010	133
Peotone Bank and Trust Company, Peotone, IL	4/23/2010	31.7
Lincoln Park Savings Bank, Chicago, IL	4/23/2010	48.4
New Century Bank, Chicago, IL	4/23/2010	125.3
Citizens Bank and Trust Company of Chicago, Chicago, IL	4/23/2010	20.9
Broadway Bank, Chicago, IL	4/23/2010	394.3
Amcore Bank, National Association, Rockford, IL	4/23/2010	220.3
City Bank, Lynnwood, WA	4/16/2010	323.4
Tamalpais, San Rafael, CA	4/16/2010	81.1
Innovative Bank, Oakland, CA	4/16/2010	37.8
Butler Bank, Lowell, MA	4/16/2010	22.9
Riverside National Bank of Florida, Fort Pierce, FL	4/16/2010	491.8
American First Bank, Clermont, FL	4/16/2010	10.5
First Federal Bank of North Florida, Palatka, FL	4/16/2010	6
Lakeside Community Bank, Sterling Heights, MI	4/16/2010	11.2
Beach First National Bank, Myrtle Beach, SC	4/09/2010	130.3
Desert Hills Bank, Phoenix, AZ	3/26/2010	106.7
Unity National Bank, Cartersville, GA	3/26/2010	67.2
Key West Bank, Key West, FL	3/26/2010	23.1
McIntosh Commercial Bank, Carrollton, GA	3/26/2010	123.3
State Bank of Aurora, Aurora, MN	3/19/2010	4.2
First Lowndes Bank, Fort Deposit, AL	3/19/2010	38.3
Bank of Hiawassee, Hiawasssee, GA	3/19/2010	137.7
Appalachian Community Bank, Ellijay, GA	3/19/2010	419.3
Advanta Bank Corp, Draper, UT	3/19/2010	635.6
Century Security Bank, Duluth, MN	3/19/2010	29.9
American National Bank, Parma, OH	3/19/2010	17.1
Statewide Bank, Covington, LA	3/12/2010	38.1
Old Southern Bank, Orlando, FL	3/12/2010	94.6
The Park Avenue Bank, New York, NY	3/12/2010	50.7
LibertyPointe Bank, New York, NY	3/11/2010	24.8
Centennial Bank, Ogden, UT	3/5/2010	96.3
Waterfield Bank, Germantown, MD	3/5/2010	51
Bank of Illinois, Normal, IL	3/5/2010	53.7
Sun American Bank, Boca Raton, FL	3/5/2010	103.8
Rainier Pacific Bank, Tacoma, WA	2/26/2010	95.2
Carson River Community Bank, Carson City, NV	2/26/2010	7.9
La Jolla Bank, F.S.B., La Jolla, CA	2/19/2010	882.3
George Washington Savings Bank, Orland Park, IL	2/19/2010	141.4
The La Coste National Bank, La Coste, TX	2/19/2010	3.7
Marco Community Bank, Marco Island, FL	2/19/2010	38.1
First American State Bank of Minnesota, Hancock, MN	2/05/2010	3.1
American Marine Bank, Bainbridge Island, WA	1/29/2010	58.9
First Regional Bank, Los Angles, CA	1/29/2010	825.5
Community Bank and Trust, Cornelia, GA	1/29/2010	354.5
Marshall Bank, N.A., Hallock, MN	1/29/2010	4.1
Florida Community Bank, Immokalee, FL	1/29/2010	352.6
First National Bank of Georgia, Carrollton, GA	1/29/2010	260.4
Columbia River Bank, The Dalles, OR	1/22/2010	172.5
Evergreen Bank, Seattle, WA	1/22/2010	64.2
Charter Bank, Santa Fe, NM	1/22/2010	201.9
Bank of Leeton, Leeton, MO	1/22/2010	8.1
Premier American Bank, Miami, FL	1/22/2010	85
Town Community Bank & Trust, Antioch, IL	1/15/2010	17.8
St. Stephen State Bank, St. Stephen, MN	1/15/2010	7.2
Barnes Banking Company, Kaysville, UT	1/15/2010	271.3
Horizon Bank, Bellingham, WA	1/08/2010	539.1

 

http://www.foxbusiness.com/personal-finance/2010/12/14/list-failed-banks/

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Small-business optimism in November rose to the highest level since the month the recession officially began, November 2007, according to the closely watched monthly survey released Tuesday by the National Federation of Independent Business.

It is the latest survey to show increasing optimism among small-business owners who head the vast majority of U.S. firms and employ about half the nation’s private workers. Among the others:

Wells Fargo/Gallup Small Business Index says business owners expect higher revenues, cash flow and capital spending in the next 12 months.
Discover Card’s Small Business Watch reports the third consecutive monthly gain in small-business optimism and 11 points higher than a year ago.
The CDW IT Monitor of the U.S. information technology marketplace reports small-business owners showing more confidence in their ability to make technology investments that will help their businesses become more efficient.
Constant Contact, the online marketing firm, says 73% of 1,400 small-business owners recently surveyed expect their companies to grow in the coming 12 months.
Yahoo! Small Business says 39% of small merchants believe year-end holiday sales will be “stronger than most years,” 10 percentage points higher than a year ago.That Yahoo! finding is telling: The numbers are improvements from a dismal past but not great by historic standards.

The NFIB optimism index is “still a recession-level reading; the average was about 100 before the recession started,” the group said.

NFIB Chief Economist Bill Dunkelberg said, “The Index is trending up, but at a very slow pace….Apparently the future is looking brighter for more owners, although much will depend on what Congress does in the closing weeks of the year.”

Ryan Sweet, senior economist at Moody’s Analytics Inc. agreed. “The winds are changing in favor of small businesses. It is a gradual improvement but they’re definitely more active than they were a few months ago. As these businesses re-engage, it’ll put the recovery on a more solid footing.”

Wells Fargo Bank executive in Orange County Alan Epperson added, “After a year when optimism dropped to the lowest level in survey history, business owners appear to be turning the corner and looking ahead.”

Wells Fargo has set up a financial website to help small businesses.

Wells Fargo senior economist Scott Anderson said, “Better economic conditions including a strong lift in third quarter GDP — in particular new strength in consumer spending — are boosting small business owners’ perceptions for increased cash flows and revenues over the next 12 months. This improved optimism bodes well for the overall economy.”

On the Discover survey, small-business owners’ concern about cash flow issues was the lowest in 17 months. However, 59% still rate the current economy as poor and only 4% rate it as excellent.

That dim view is in line with a survey by BMO Financial Group that showed 88% of American business people think the U.S. economy is still in recession (52% of Canadian business people said the said about their own economy).

http://jan.ocregister.com/2010/12/15/are-small-firms-optimistic-or-merely-less-depressed/51122/

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Lending to U.S. small businesses fell in the third quarter, showing the companies that account for more than half of total job creation are still struggling to emerge from the recession.

Net borrowing by non-financial non-corporate businesses shrank by $162.7 billion at an annual rate from July through September, the seventh consecutive quarterly decrease, according to the Federal Reserve’s Flow of Funds report released today in Washington. Still, it was the smallest drop of the contraction in lending that began in the first three months of 2009.

Small companies are “still hurting and working toward healing and not borrowing,” said Julia Coronado, chief economist for North America at BNP Paribas in New York, who worked on the report as a Fed economist. “They’re paying down bank loans, they’re paying down mortgages.”

Sales expectations at small businesses turned positive for the first time in five months in October, according to a survey last month by the National Federation of Independent Business, indicating firms may begin expanding in coming months. At the same time, the value of their assets has fallen, making it harder to qualify for loans, Coronado said.

Fed Chairman Ben S. Bernanke has said these companies account for 60 percent of job creation, meaning bigger payroll gains a lower unemployment hinge on their willingness and ability to spend.

Construction Companies

Non-financial, non-corporate businesses are firms that are not publicly traded. While they can include large companies, many are small businesses, real-estate investment concerns and construction firms, said Coronado.

Larger firms, meanwhile, are borrowing more from banks to finance investments in new equipment. Corporate borrowing rose by $328.5 billion at an annual pace in the third quarter. While companies had a record $1.93 trillion in cash and other liquid assets, they spent more on plants and equipment, bringing the so-called financing gap to $127.9 billion, the most in at least two years.

“There’s clearly a surge in excess cash flow for the business sector so companies can pay off debt, that’s more true of big companies than small,” said Jim O’Sullivan, global chief economist at MF Global Ltd. in New York.

The Fed’s senior loan officer survey for October showed 12.3 percent of large and mid-market firms said lending standards had eased somewhat, the same as in July and up from 10.7 percent in April, according to a report released Nov. 8. Eleven percent of small firms said standards eased, compared with 14.5 percent in July and 1.9 percent in April.

Obama Focus

The Obama administration earlier this year singled out small businesses as a key to faster economic growth. In September, President Barack Obama signed legislation that included $56 billion worth of tax cuts over 12 months and a $30 billion program to boost lending. That was in addition to provisions in the general stimulus plan that funded increased limits on loan guarantees offered by the Small Business Administration.

Banks including Bank of America Corp. and Citigroup Inc. have said they’re increasing their focus on small business lending. Citigroup said Nov. 15 it planned to hire 200 bankers by the end of 2011 to court businesses with less than $20 million of annual sales.

Even so, with consumers still focusing on repairing their balance sheets, it will take a while for small companies to want to increase borrowing, Coronado said.

“There’s not a strong desire to borrow aggressively because activity is still relatively modest,” she said.

http://www.bloomberg.com/news/2010-12-09/lending-to-u-s-small-businesses-declines-as-firms-repair-balance-sheets.html

To contact the report on this story: Courtney Schlisserman in Washington at cschlisserma@bloomberg.net

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Jimmy Campbell, president and CEO of Fort Worth-based Community Bank, has been tapped by the Federal Reserve Bank of Dallas to serve on its new Community Depository Institutions Advisory Council.

The Council, composed of 12 representatives from financial institutions of various sizes in Texas, northern Louisiana and southern New Mexico, is part of a Federal Reserve initiative to enhance communication and feedback with community bankers.

Garold R. Base, president and CEO of ViewPoint Bank in Plano, was also selected to serve on the council, which includes 10 representatives from Texas institutions.
The council will provide senior Dallas Fed officials grassroots information on a variety of topics, including economic and banking conditions, regulatory policies and payments issues.
“With financial services presently concentrated in a small number of very large institutions, we believe that broadening the channels of communication between the Fed and depository institution leaders is important to our financial industry and to the communities we mutually serve,” said Richard W. Fisher, president and CEO of the Federal Reserve Bank of Dallas, in a release.
http://fwbusinesspress.com/main.asp?FromHome=1&TypeID=1&ArticleID=13826&SectionID=5&SubSectionID=30

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After a Lengthy Credit-Crunch, iFranchise Group and Franchise Dynamics Executives Expect Pent-Up Demand to Fuel Franchise Sales Explosion as Credit Loosens in the New Year

HOMEWOOD, Ill., Dec. 6, 2010 /PRNewswire/ — The iFranchise Group, a leading franchise consulting firm based near Chicago, and its strategic partner company, Franchise Dynamics, which provides outsourced franchise sales services, are predicting a slow-paced loosening of credit for franchise systems and franchise buyers in the coming months. This comes on the heels of a protracted period, dating back to the early days of the recession, where funding has been extremely difficult to obtain, even for highly-qualified borrowers.  

The franchising sector has not been immune to the challenges faced by home-buyers and sellers and small business owners: banks and other lenders, burned during the financial meltdown of 2008, had tightened the reins on just about all lending.

“Historically,” says iFranchise Group CEO, Mark Siebert, “One could reasonably assume that obtaining a loan to purchase a franchise would be a simple process, merely by demonstrating an interest in the business, some collateral, a decent credit score, and a minimal amount of liquid capital. When the banking and housing crisis became the new reality, things changed.”  Demand for franchises, however, continues to grow as unemployment remains high.  ”With all of the pent-up demand created by the continued unemployment situation, even a small change in loan availability will likely create a huge positive impact on franchise sales.”

As a result of the recent difficulties in obtaining financing, some larger franchisors, in the foodservice sector in particular, have raised the requirements for franchise buyers, expecting them to have prior industry and business-ownership experience, and greater pools of liquid capital, in order to be considered for entry into their systems. Even experienced multi-unit owners and franchisors have found it challenging to obtain funding from traditional sources when they look to open additional franchise units or divest themselves of corporate units to convert to franchises.

But signs point to change on the horizon. The Small Business Jobs Act, passed earlier this Fall, included a pool of $30 billion in low-cost capital available for small business lending. The Act also stipulated enhanced SBA loan provisions – such as the elimination of guarantee fees, reduced the fees charged to lenders, and increased guarantee levels offered — as well lending support, tax cuts, and other opportunities for entrepreneurs and small business owners. The Treasury Department also announced $1.5 billion in funding to the State Small Business Credit Initiative, under which states partner with local lenders to extend credit to small businesses.

According to Robert Stidham, President of Franchise Dynamics, “At this point, we still see most loans being done by community banks and credit unions, plus we see more investors or investment groups funding franchise sales. Many banks want to lend, but lending standards and required documentation remain stringent. We are already seeing some indications that access to financing is improving, and our clients have seen it as well.”  Stidham predicts that 2011 will be a banner year for franchise sales.  ”We had a record year in 2010 despite the lack of available financing. As capital availability improves, we expect that franchise systems will be the big beneficiary.”

 

About iFranchise Group:  iFranchise Group (www.ifranchisegroup.com), is a leading franchise consulting firm that offers the skills of the nation’s top professionals in franchise strategic planning, operations training and documentation, franchise marketing and sales, advertising fund management, franchise recruitment, and development of Internet-based applications for emerging and established franchise companies worldwide.

About Franchise Dynamics:  Franchise Dynamics (www.franchisedynamics.net), is the nation’s first full-service franchise sales outsourcing firm.  Franchise Dynamics provides a complete solution for its clients’ franchise sales needs.  Full cycle franchise sales outsourcing services include providing dedicated sales staff, franchise marketing input, initial lead handling, materials distribution, preliminary qualification, FDD disclosure, “discovery day” presentation, document management and both pre- and post-franchise sales closing support.

Available Topic Expert(s): For information on the listed expert(s), click appropriate link.

Mark Siebert

https://profnet.prnewswire.com/Subscriber/ExpertProfile.aspx?ei=60212

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A Letter From The SBA, to Russell G. Golden, Technical Director, File Reference No. 1850-100, Financial Accounting Standards Board, 401 Merritt 7, PO Box 5116, Norwalk, CT 06856-5116

http://www.sba.gov/advo/laws/comments/fasb10_1201.html

Dear Mr. Golden

The Office of Advocacy (Advocacy) offers the following comment to the Financial Accounting Standards Board (FASB) regarding the Exposure Draft (ED) of a proposed Accounting Standards Update of Leases (Topic 840). The ED provides a proposed accounting standard that would replace Statement of Financial Accounting Standards No. 13, Accounting for Leases (FAS 13), governing the accounting for commercial lease transactions in the United States. The ED invited comments on all matters discussed in the paper.

FASB intends that the proposed approach announced in the ED, if finalized, would mandate that leasing entities provide a more consistent picture of their leasing activities in accounting statements.(1) Advocacy commends FASB for its efforts to create a common standard on lease accounting but recommends that the board develop alternatives that would minimize the burden of the proposed standard on small businesses engaging in shorter-term, less-costly lease transactions. In particular, Advocacy recommends that FASB create a de minimis exception to the standard that would exempt lease transactions of less than $250,000 from the proposed standard.

Office of Advocacy

Advocacy was established pursuant to P.L. 94-305 to represent the views of small business before Federal agencies and Congress.(2) Advocacy is an independent office within SBA, so the views expressed by Advocacy do not necessarily reflect the views of the SBA or the Administration.

Background

The current accounting standard for leasing distinguishes between two types of transactions: (1) “operating leases” and (2) “capital leases.” In an operating lease, the lessor transfers only the right to use the property to the lessee. At the end of the lease period, the lessee returns the property to the lessor. As the lessee does not assume the risk of ownership, the lessee treats the lease expense as an operating expense in the income statement and the lease does not affect the lessee’s balance sheet.

In a capital lease, the lessee assumes some of the risks of ownership and enjoys some of the benefits of the asset. Consequently, the lessee recognizes a capital lease as both an asset and a liability (for the lease payments) on the balance sheet. The lessee may claim depreciation each year on the asset and also deducts the interest expense component of the lease payment each year. In general, capital leases recognize expenses sooner than equivalent operating leases.

Since 2006, FASB has been engaged in a project to create a common standard on lease accounting in an attempt to ensure that the assets and liabilities arising from lease contracts are recognized in entities’ statements of financial position.(3) On March 19, 2009, FASB issued a Discussion Paper (DP) proposing a new approach to lease accounting.(4) The DP proposed changing how lessees account for leases, particularly changing the accounting for leases that are currently classified as operating leases.

Specifically, the DP proposed an overall approach that would apply the existing “finance lease” model to all leases, including operating leases. Under this approach, a lessee would recognize an asset on the balance sheet representing the lessee’s right to use the leased item and a liability for its obligation to make payments. Applying the existing finance capital lease model to all leases would require that all leases be accounted for as though the asset were purchased and financed with a loan. The DP would also require lessees with capital leases to make adjustments and rebook assets and liabilities currently on balance statements.

FASB stated that the purpose of the changed approach to lease accounting would be to provide a more “complete and understandable picture of an entity’s leasing activities.”(5) The DP would require lessees to provide more information on financial statements.

On June 30, 2009, Advocacy filed a comment letter with FASB in response to the DP.(6) In the comment letter, Advocacy conveyed the concerns of small businesses regarding the DP and recommended that FASB develop alternatives that would minimize the burden of the proposed standard on small businesses engaging in shorter-term, less-costly lease transactions. Specifically, Advocacy recommended that FASB create a de minimis exception to the standard that would exempt lease transactions of less than $250,000 from the proposed standard.

Advocacy recommended exempting this lease transaction amount because the Equipment Leasing and Finance Association (ELFA) recognizes that lease transactions of less than $250,000 are considered “small ticket” leases relative to costlier and more significant lease transactions.(7) Exempting lease transactions of less than $250,000 from the proposed standard would exclude small businesses with “small ticket” leases from administering the costly and complicated proposed standard but would still accomplish FASB’s objective by requiring significant lease transactions of $250,000 or more to comply with the new standard.

In its ED, issued on August 17, 2010, FASB continued to propose an overall approach that would apply the existing “finance lease” model to all leases, including operating leases. The ED did not adopt or otherwise address Advocacy’s recommendation to create a $250,000 exception to the standard from the proposed standard.

Small Business Concerns

As described in Advocacy’s June 30, 2009, letter, the proposed capitalization of all leases would impact all small businesses that lease equipment or real estate, regardless of the monetary value or duration of the lease. As an example of the wide-reaching scope of the proposed standard, even a small business that leased a $1,000 photocopy machine for a fixed period of two years would be required to change its financial statement and report the photocopier on its asset sheet as if the small business owned the photocopier.

Small business stakeholders that have been in contact with Advocacy have expressed concern with the proposed lease accounting standard contained in the ED. As described in more detail below, small business stakeholders have identified two concerns associated with the proposed lease accounting standard regarding: (1) the capitalization of all leases, including operating leases; and (2) the increased bookkeeping and analytical costs that would result from compliance with the new standard.

Capitalization of All Leases

Under the current lease accounting standards, operating leases are accounted for as a rental expense and do not impact small business lessees’ liability on financial statements. Because the ED would reclassify operating leases as capital leases, this would substantially increase the debt shown on small business lessees’ financial statements. This would also cause these small companies to have financial statements that show reduced earnings and reduced capital. Further, with more assets on their balance sheets, certain small business lessees, like community banks, might be required to increase their capital reserves as risk mitigation to satisfy capital adequacy rules.

Increased Bookkeeping and Analytical Costs

The proposed changed standard would add complexity and result in small business lessees with financial statements that are less understandable and less comparable than they are under the current standards. This increased complexity would also result in costs imposed on small businesses. In addition, learning to comply with and actually implementing the proposed new lease accounting standards would require small business owners to incur training and attorney costs.

As an example, under the ED, all leases would have book/tax timing differences requiring complex deferred tax accounting; currently, most small business lessees do not contend with book/tax timing differences because the current lease accounting rules are consistent with the IRS lease rules. Additionally, the ED would also require small businesses that lease to be responsible for new, complicated calculations, including estimating contingent rents and renewal rents, revising estimates, and recording adjustments.

Recommendations

Advocacy commends the efforts of FASB to create a common standard for lease accounting. However, because the costs and complexity of the proposed standard would likely result in small business lessees with financial statements that are less understandable and comparable than they currently are, Advocacy again recommends that FASB develop alternatives that would minimize the burden of the proposed standard on small businesses engaging in shorter-term, less-costly lease transactions. Specifically, Advocacy continues to recommend that FASB create a de minimis exception to the proposed standard that would exempt lease transactions of less than $250,000 from the proposed standard. Exempting lease transactions of less than $250,000 from the proposed standard would exclude small businesses with “small ticket” leases from administering the costly and complicated proposed standard but would still accomplish FASB’s objective by requiring significant lease transactions of $250,000 or more to comply with the new standard.

We appreciate this opportunity to voice the concerns of small businesses. Advocacy looks forward to working with you on this issue. If you have any questions or require additional information please contact Assistant Chief Counsel for Dillon Taylor at (202) 401-9787 or by email at Dillon.Taylor@sba.gov.

Sincerely,

/s/

Winslow Sargeant, Ph.D.
Chief Counsel for Advocacy

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