Friday, August 31, 2007

Put it on your calendars

It's almost too late to go for this season, but I finally got around to getting out to a Kansas City T-Bones game.

This is not minor-league baseball as I remember it: no wooden bleachers in sight, and no $5 tickets and $4 hamburgers either. There's a DiamondVision screen, there's theme music for every batter, and most of the seats are right on top of the action. It's like major league baseball, only the players do things like miss routine pop-ups or get to base on a dropped third strike.

Recommended! Put it on your to-do list for next summer.

Is a Fed rate cut a lock? Not so fast....

Many people I've talked to have thought that a rate cut by the Federal Reserve at their September 17 was more or less a sure thing.

Not so fast! Greg Ip of the Wall Street Journal, in this very good article, lays out how Ben Bernanke is definitely cutting his own path.

To sum up the article, there are very real fears that cutting the federal funds rate would encourage people to go back to the bad old days of lending money to borrowers who shouldn't have it. Or, in the words of one broker I talked with recently, "take the industry back to being a bunch of yahoos that can't talk about anything else but rate."

In other subprime meltdown news, HR Block says it's getting out of the mortgage business period, end of story, even if the sale of OptionOne to Cerebrus Capital Management doesn't go through.

Given that Cerebrus was a three-headed dog in charge of guarding hell, this kind of looks like a no-win for OptionOne employees.

Wednesday, August 29, 2007

No news is good news...

Here's a great example of the cliche come to life: of the top twenty stories in the business section at, only one of them has anything to do with subprime fallout.

Could the end of the credit crunch be in sight? One mortgage broker is seeing positive signs.

And while the Federal Reserve doesn't exactly set mortgage rates, its actions do affect the commercial paper market, and that's what drives the loans I can help entrepreneurs with. If you're in business for yourself, keep an eye out for September 17th.

Monday, August 27, 2007

Subprime meltdown continues to be the story

The massive earthquake of the financial world continues to have aftershocks:

1) The combination of tightening guidelines and foreclosures has created a glut of inventory.

2) That oversupply is creating the first nation-wide drop in housing values ever.

3) The difficulty in measuring the risk to lenders has resulted in the liquidation of a German bank.

4) When you put all this together, it means that the National Association of Business Economics has declared that bad credit is the number one short-term threat to the US economy.

As all of this shakes out, lenders will be more risk-averse for years to come. Naturally you want to do all the right things like pay your bills on time, be careful about taking on new debt, etc.

TIP: One place I've seen entrepreneurs swing and miss is not monitoring their credit reports, or not taking corrective action when there are derogatory items filed. If you've ever had anything derogatory on your credit report, don't assume it's going away. Make sure you take the matter up with each individual credit bureau, and keep monitoring your report until the matter reflects correctly.

Friday, August 24, 2007

An open letter to Dayton Moore

Please please please please please.... please... cut Emil Brown. He's this year's Angel Berroa.

Not that he's as bad as Angel... hopefully no one will ever again display quite that same combination of apathy, lassitude, and marginal competence.

But let's continue the work the Royals have done in sawing off deadwood and invite Mr. Brown to test his weight on the free agent market.

SBA loans

A common resort for small businesses is an SBA loan. In the Kansas guide there are 7 pages of lenders. Each page has about 48 lending banks.

Is an SBA loan right for your situation? Are there better alternatives? Are there alternatives period?

This is your livelihood, and you need a partner who's going to work with you on a number of avenues. That's the value a broker can bring.

Or, you could make 350 phone calls.

Thursday, August 23, 2007

``There's just fear gripping the market.''

No matter how you slice it, 891 billion dollars is a lot of money. That sum is the amount that banks have at risk in commercial paper, the short term loans that banks use to lend money on bigger loans.

What we have is a production line where one part of the line is coming to a full stop. This is why so many central governmental institutions are stepping in to get things rolling.

Already there are signs that the panic is starting to abate, but unless the commercial paper market gets going again soon, things could be ugly.

TIP: What's an entrepreneur to do? One avenue is to investigate an SBA loan. These are still moving strongly, with bankers fighting to get into the game. Different banks have different features and guidelines for their SBA loans, so it helps to have a broker working with you. Call me at 913-754-1001 to see if that's a workable solution for your situation.

Wednesday, August 22, 2007

"They're all Waldos now."

Excellent article in today's CNN/Money section by Bill Gross, describing just why the panic has spread so quickly in the commercial paper market.

Essentially, no one knows quite where the "bad" money went. Here's the money quote:
Those looking for clues to the extent of the spreading fungus should understand that there really is no comprehensive data to allow anyone to know how many subprimes actually rest in individual institutional portfolios.

So if subprime loan default rates have tripled, and you don't know how many subprime loans are currently in your portfolio, you don't actually know how much money you have in your portfolio, because you don't know how much is going away.

But getting back to essentials: no one can make money sitting on a mattress. When the storm clears up -- and it will -- my hunch is that lenders are going to be much less forgiving of mistakes than they have been.

TIP: If you're in business for yourself right now, hold off on any unnecessary car purchases. The single biggest deal killer for loans is that new car you just bought.

Tuesday, August 21, 2007

Another Fed rate cut?

Question: Will there be another Fed rate cut? Answer: You tell me.

On the one hand, Bloomberg leads off its website today by telling us that the Fed may be able to avoid a rate cut.

On the other, Reuters reports that Fed observers are reading another rate cut as being inevitable.

I'm old enough to remember when people made careers out of watching who was standing next to the Soviet premiers as the tanks went by on parades. It seems there's a certain analogy.

The bottom line, however, is that the trend line for 5 and 10 year bonds is consistently downwards over the past few months. That plus the probability of another rate cute is good reason to think that the current credit crunch is going to ease in the near-term.

Most businesses have started making their 2008 plans. If you're going to need some kind of financing to make those plans happen, the fall will be an important time for you.

Friday, August 17, 2007

5 Ways to Screw Up Your Commercial Deal

In some ways, commercial loans can be easier to get than residential loans. But there's no doubt that they're also more time- and money-intensive than a traditional mortgage. Just like working for yourself requires more commitment than working for others, a business loan requires a real commitment.

Here are 5 really good ways to mess up your commercial deal.

1) Failing to budget: A commercial loan on a property is going to require an appraisal, and these appraisals can run into big money. $2,500-$3,000 is a realistic budget for a commercial deal. In addition, many lenders are going to require a commitment fee. Get a strong sense of what kind of expenses are going to be required before you proceed with your loan.

2) Failing to pull the trigger: Procrastination kills more deals than anything else. If you're refinancing because you need money, then get the money while it's on the table. Credit scores can drop, sellers can change their minds, lenders can pull programs... very few good things come with waiting in today's environment.

3) Not getting buy-in from partners: If you have partners in your LLC or property with a 10% share or better, chances are good you're going to need them in this with you. They'll also have to consent to a credit report pull, submitting their tax returns, and all the steps you're talking to get this done.

4) Not having your ducks in a row. Your loan officer should work with you on this, but the information you're going to have to provide will be considerable. This usually includes at a minimum two years of business and personal returns, a year to date financial statement, a copy of your LLC's charter, and often a rent roll, business plan, or other documents that show how you're going to be able to pay off this loan.

5) Get going too late: Some commercial loans close and fund in a week. Most, however, take a lot longer. From the time you get your underwriting approval to the time when the loan gets done, you should budget about 6 weeks for the whole process. Obviously, if you need the money in two weeks, you're starting late.

What it all boils down to, as usual in business: be more honest, budget more time, and don't procrastinate.

Thursday, August 16, 2007

You are SO not alone

Entrepreneurs often miss the office work space, and sometimes it feels more than a little strange to be out on your own.

But there are a ton of people doing it. Check out this quote from the business section of the Kansas City Star:
The U.S. Census Bureau last fall reported an almost unbelievable number: Self-employed individuals who have no paid employees operate three-fourths of U.S. businesses. These self-employed roamers may miss co-worker camaraderie, but, boy, do some office-bound employees covet their peripatetic “bedouin” style.

Everyone of those people is contributing something, and probably everyone of them thinks, "why don't I have a normal job?" But the entrepreneur is becoming the new normal.

Enjoy the river

Part of living here is (and this will shock some of the work-aholics I know) enjoying living here.

Here's a company that can help you do that: the Missouri River Paddling Company. I'm a big fan of canoeing and kayaking, and these folks will take you down the Missouri and Platte Rivers. On a fall day, what could be better?

Tuesday, August 14, 2007

The Kelo Decision In Kansas City

You might remember the Kelo decision gave a rubber stamp to government's ability to condemn properties for the use of a private party.

An interesting example of that is at work here in Kansas City as the Dunn Company is being slapped around by the local condemnation panel, which has recommended a value of $63 to $77 a square foot for the block bound by 10th, Locust, 11th and Cherry Streets.

I guess I sympathize a little with the Dunn Company... it's hard to see how a mostly vacant parking lot is worth that. At the top end, that means that this lot should be charging $7,000 per year per parking space. I doubt they're getting that, and I doubt Dunn's getting a fair deal.

On the other hand, how many entrepreneurs have the ability to walk to a City Council member and say "Hey, would you get that property condemned for me?" Now compare that number to how many are likely to be on the short end of that stick.

Monday, August 13, 2007

Getting a Business Loan: Not That Hard

I promise that I'll blog about something besides the subprime meltdown soon, but it's certainly the story of the moment in the financial world.

If you're an entrepreneur in the Kansas City area, will the credit crunch kill your loan? Actually, probably not.

The real credit crunch in the commercial world right now is for companies trying to buy companies. For the entrepreneur who wants to buy a six-plex or a gas station, those loans are still out there. For now.

As always, you need to pull the trigger on a deal sooner rather than later, because who knows what tomorrow is going to bring. Anyone trying to predict the future right now is going to have some sleepless nights.

China: We Won't Nuke the Dollar

You'll always see people who get their kicks by proclaiming that a particular crisis is the end of the world as we know it. One of the pieces of doom-and-gloom I've seen is the idea that the People's Republic of China is going to destroy the United States by selling off all of its dollar-based assets and plunging us into another Great Depression.

It's nice that the Chinese are promising not to do that, but the real reason not to buy the hype is down a little lower:
Leading Chinese economist Yu Yongding, the director of the Institute of World Economics and Politics under the Chinese Academy of Social Sciences, told Caijing magazine that China could not possibly diversify away from the dollar to other currency assets without substantially weakening the dollar, the results of which would not work in China’s interest.

In other words, the Chinese know full well that they'd blow up their export market by blowing up the dollar.

Friday, August 10, 2007

Subprime hits commercial paper

Commercial paper, the assets that are used to back a wide variety of financial instruments have hit their highest rates since 2001.

This is a great example of panic in the marketplace: investors are demanding higher yields on commercial paper because some of them contain mortgages. Note the word "some" -- commercial paper is used to back everything from auto loans to insurance underwriting as well as small business loans. But because of the subprime crisis, the general trend right now is towards an evaporation of lending capital.

Investors can't sit on the sidelines forever -- pension funds aren't going to meet their obligations by putting a few billion dollars in money markets and interest-bearing checking accounts. To ease this liquidity crunch, we're seeing moves by a wide variety of central banks to put money into the system. At my last count, the European Union, the Australians, the South Koreans, and others are making what are more or less emergency loans.

What does this mean for you as a business owner? Expect the costs of doing business to go up, for one thing. If you've been thinking of getting a line of credit or a business loan, act now to lock it down, because the deal on the table today may very well not be there tomorrow.

Thursday, August 9, 2007

It's hard out there for a sub-prime lender

Some people are wondering if the worst of the sub-prime storm has passed us by. Maybe. Here's the bad news... if the worst of the storm has gone by, there's still plenty of storm to come.

Check out this slideshow from Business Week. California foreclosures are up 286% from last year.

In other words, the big money is running away from the home loan business. That means lenders are dying off, and in turn, that means many buyers are having a hard time buying.

Bad news for the credit challenged buyer, and bad news for a seller. But it could be great news for you.

If you've got the nerve to buy when prices are low, now's the chance. Between desperate sellers and rising foreclosure rates, this could be one of the best times ever to buy investment properties. That's not a game for everyone -- but if you have some money to put down and if you have strong credit, you're not going to find a better time to scoop up some bargains.

TIP: Be particularly on the lookout for single-family houses or duplexes. Fourplexes are riskier loans to lender, and they carry a correspondingly higher price.

If you'd like see if I can get you into some investment opportunities, give me a call today at 913-754-1001.


You're reading the first post for KCBizFunds. The mission of this blog is to help entrepreneurs enjoy the fruits of their labors. You'll find tips here on how to get a loan for your business, as well as tips on management, marketing, and how to enjoy yourself here in the Kansas City area during those precious off-hours!

With all of the turmoil in the lending industry, take a second right now to bookmark this blog, so that you can keep up with the changes here in our area.