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| SBA Administrator Karen Mills at Always Bagels |
| 02-21-2012 | 0 Comments |
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| Best Practices: Perfecting Against an Individual Debtor under the 2010 Amendments to UCC Article 9 |
| 02-16-2012 | 0 Comments |
| By Kimbery Rayer, Esq. In 2010 the National Conference of Commissioners on Uniform State... |
| The Gourmet Truck Business |
| 02-14-2012 | 0 Comments |
| By: Harris Eckstut Co written by: Patrick O'Rourke, a restaurant operations specialist and... |
| Real Estate, Improvements, and “The Kitchen Sink” – The SBA 504 Loan |
| 02-14-2012 | 0 Comments |
| By: Chuck Swope, CCIM The SBA 504 Loan is a fantastic financing choice for owner-occupied... |
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SBA Administrator Karen Mills at Always Bagels Tuesday, February 21st, 2012Best Practices: Perfecting Against an Individual Debtor under the 2010 Amendments to UCC Article 9 Thursday, February 16th, 2012By Kimbery Rayer, Esq. In 2010 the National Conference of Commissioners on Uniform State Laws approved proposed amendments to Article 9 of the Uniform Commercial Code (“2010 Amendments”). The 2010 Amendments are in the process of being adopted by each state with an effective date of July 1, 2013. Most of the 2010 Amendments are just clarifications to provisions of revised Article 9 that came into effect on July 1, 2001. Some of the proposed changes under the 2010 Amendments include: definition of an organization’s “public organic record” for purpose of determining a registered organization’s name; clarification on the “location” of a debtor and revisions to the filing requirements against trusts and estates. One of the 2010 Amendments is expected to have a considerable impact on how a secured party identifies an individual debtor on its financing statement. Current Article 9 simply requires that for individual debtors, a secured party use the “name of the debtor” on its financing statement. Due to nicknames, changing marital status and cultural differences, determining the correct “name of the debtor” has proven to be, at times, a challenge for secured parties. Common law provides that a secured party should use the name an individual debtor is “commonly known by,” but courts have gone in different directions in determining what is sufficient evidence of a “commonly known as” name. For example, different courts have ruled that the name “Mike” is both sufficient and insufficient for identifying an individual debtor with the first name “Michael”. See In re Erwin, 50 UCC Rep Serv 2d 933, 2003 Bankr. LEXIS 692 (Bankr. D. Kan., June 17, 2003) and In re Larsen, 2010 WL 909138, 72, UCC Rep.2d 187 (Bankr. S.D. Iowa 2010). The proposed 2010 Amendments provide two alternative approaches to determining the individual debtor’s correct name for filing a financing statement. Alterative A provides that a secured party has properly perfected against an individual debtor “only if” the debtor’s name on the financing statement matches the debtor’s name as it appears on its state issued driver’s license (or state issued identification card). If the individual debtor does not have a driver’s license (or ID card), then the secured party should use the individual’s first name and surname. Alternative B is commonly referred to as the “safe harbor” alternative. The provision allows for filing against the “name of the debtor” as provided under current Article 9, but provides a safe harbor for using the name designated on a state issued driver’s licenses or state ID card. While the requirement to use the debtor’s driver’s license in Alternative A provides some uniformity to filings and search requirements for secured parties, it has also raised some concern regarding what will happen when a debtor’s driver’s license expires? For example, does a financing statement filed using an individual’s driver’s license become ineffective if the debtor changes its name when he or she renews his or her license? Is the secured party obligated to obtain an updated driver’s license during the life of the loan? However, if a state has adopted the safe harbor alternative, the secured party will continue to have the burden of searching the debtor’s name under a variety of “commonly known as” names and not just rely on the debtor’s driver’s license. Finally, each state’s option to adopt either Alternative A or B, or to adopt their own modified version of Alternative A or B, will require secured parties to research each state’s individual debtor name requirements when searching and filing against individual debtors, instead of relying on a uniform search criteria in all states. The changes proposed under the 2010 Amendments for the most part will not create significant changes for Lenders, but its in Lenders’ best interest to familiarize themselves with these amendments now so that they can determine what changes, if any, may impact their closing and servicing practices and adopt policies to address those changes before the July 1, 2013 effective date.
For any questions about the 2010 Amendment or Article 9, please contact Kim at krayer@starfieldsmith.com or (215) 542-7070. Real Estate, Improvements, and “The Kitchen Sink” – The SBA 504 Loan Tuesday, February 14th, 2012By: Chuck Swope, CCIM The SBA 504 Loan is a fantastic financing choice for owner-occupied commercial real estate because it requires minimal equity participation on the part of the borrower and a low interest, long term interest rate; however, the program also offers capital for items beyond real estate acquisition in the traditional sense. A 504 loan can include an allocation towards improvements of real estate – i.e. – if an owner purchases real estate that requires renovations or improvements, this work can be financed as part of the loan package, in addition to equipment. This is especially helpful with “shell” spaces, which is the common form of delivery of office and flex/industrial condominiums. In many instances, the developer / seller of such spaces will deliver the unit with painted perimeter walls, minimal heat / light, and utilities terminated within the space. The buyer has the ability to customize the space to its needs and provide input from the initial stages of the “fit out” (improvement) of “shell space.” In addition to the “fit out”, 504 Financing can include financing of “long term machinery and equipment”, according to the SBA.gov website. Our firm has been involved in many projects when the buyer will finance equipment and trade fixtures as part of the SBA loan. Two examples of 504 projects that have included equipment financing are a commercial catering kitchen and a crematory (distinct and separate properties, of course). The crematory financed the real estate (shell flex space), improvements (small office “fit out”), and the equipment (walk-in cooler, retort (oven), and related items). The caterer wrapped his real estate (“shell space”), improvements (small office / conference room), and equipment (commercial kitchen equipment to include “the kitchen sink”) into one SBA 504 loan. The ability to package real estate acquisition, improvements, and equipment into the SBA 504 loan is a fantastic way to maximize the two main benefits of the program – (i) low equity participation on the part of the borrower (up to 90% financing), and (ii) low, long-term fixed rates.
Swope Lees participates with SeedCoPA on a number of 504 projects and its professionals are available to review the merits of the 504 Program as it relates to commercial real estate. Please feel free to contact Swope Lees at 610-429-0200 or by email at Chuck@SwopeLees.com. Best Practices: Liquidating SBA Loans and the Revised 10 Tab System Tuesday, February 14th, 2012By Christopher M. Evans, Esq. In October 2011, the SBA’s National Guaranty Purchase Center (“NGPC”) released a new version of the Regular 7(a) Guaranty Purchase Tabs Package (the “10 Tab System” or the lender’s “10 Tab Package”). Among the changes incorporated into the new 10 Tab System are new requirements which highlight some of the pitfalls SBA lenders encounter when liquidating SBA loans. While there are several changes incorporated into the new 10 Tab System, this article will focus on changes which reflect program requirements governing a lender’s liquidation of a 7(a) loan as set forth in the SOP 50 51 3 and the Servicing and Liquidation Actions 7(a) Lender Matrix. The new 10 Tab System incorporates several clarifications to the information required on a lender’s transcript of account (“Form 1149″) provided in Tab 6. SBA’s Form 1149 is critical to the NGPC’s review of a lender’s 10 Tab Package: the transcript should reflect an accurate record of the borrower’s payment history, all recoveries, any liquidation expenses, and the lender’s application of each payment and/or all recoveries. The new 10 Tab System clarifies, among other things, that the Form 1149 must accurately reflect:
In addition, Tab 6 in the new 10 Tab System also includes the following note: “For loans sold into the secondary market after January 31, 2011, SBA will only pay 120 days of interest. Any interest above 120 days paid to the investor will be billed to the lender.” These changes are consistent with the SOP 50 51 3 which provides: “In the event SBA is required to pay a secondary market holder more than 120 days of accrued interest because of Lender delay, the Lender must reimburse SBA for the difference between the amount paid by SBA and 120 days of accrued interest.” Furthermore, if expenses have been deducted from recoveries, lenders are now required to include care and preservation of collateral reimbursement request packages (“CPC Tabs”) for those expenses with the submission of the 10 Tab Package. Lenders should note that, pursuant to SOP 50 51 3, only recoverable expenses may be deducted from liquidation proceeds. In order to avoid potential liability for non-recoverable expenses, SBA encourages lenders to seek prior SBA approval of any expenses through an early submission of CPC Tabs. Furthermore, prior to the commencement of any non-routine litigation, including litigation which can reasonably be expected to result in legal fees exceeding $10,000.00, a litigation plan must be submitted to and approved by SBA. In addition, in almost all cases, liquidation proceeds must be applied first to recoverable expenses, then to the principal balance of the loan, and then to accrued interest. See SOP 50 51 3 at page 131. Misapplication of liquidation proceeds may lead to a repair or, in extreme cases, a denial of the guaranty. Pursuant to the instructions at Tab 6 of the new 10 Tab System, lenders must adequately document liquidation activities and be prepared to provide SBA with such documentation upon submission of any 10 Tab Package. All SBA lenders should be careful to comply with SBA’s guidelines on liquidation as set forth in the SOP 50 51 3, SBA’s Servicing and Liquidation Actions 7(a) Lender Matrix, the code of federal regulations, and prudent lending practices. Failure to comply with such guidelines may lead to a repair or denial of the guaranty.
For more information regarding these and other issues involving the liquidation of SBA loans, contact the author at cevans@starfieldsmith.com or 215-542-7070. The Ten Year DCF Analysis Needs to Change Thursday, February 2nd, 2012By Bruce J. Coin, Director, Bruce Coin Consulting, Inc. While much of the focus this year will be on the national election, it is clear that cautious optimism now abounds. Many, but not all, of the carefully monitored economic barometers are confirming a continued but modest growth. At their January meeting the “Fed” left interest rates unchanged and commented that “the expectation is that the fed funds rate will remain exceptionally low until late in 2014. This bodes well for business and the commercial real estate industry that are substantially dependent on financing. As the economy expands and commercial real estate receives increased investor and lender attention a real concern is the way that Discounted Cash Flow analysis are used to analyze income properties. In the mid1980’s appraisers, analysts and investors started using a 10 year income and expense analysis to estimate the value of an income property and its potential IRR. The projection process is known as a Discounted Cash Flow Analysis or DCF for short. The ever increasing availability and use of computers and “canned” programs such as the early Lotus and more recent Argus facilitated increased use of the analysis. The problem is that no one has changed how these have been done for years and it’s time to recognize that “garbage in” produces “garbage out” i.e. the reliability of the analysis is only as good as the assumptions used to generate the analysis. The benefit of performing a DCF, as opposed to using a single stabilized year approach (using a “cap rate”) and capitalizing the stabilized net operating income into value, is that a DCF analysis permits its creator to consider and estimate virtually every income, vacancy, expense and capital item on a year by year basis over a forecasted “holding” period, typically ten years although they can be applied to longer and shorter periods. In uncertain times a five year analysis may be more reliable. One problem associated with running a canned program to create and perform DCF calculations is often the un-admitted but true lack of a deep understanding of how to properly use the program by its author. As a result, many analysts allow the program to perform any number of tasks without giving the amount of individual and meticulous instructions that the case warrants. When that occurs the preprogrammed formulas take over and produce results that often are not truly reflective of the intent. In addition, these preprogrammed formulas and calculations often use built in averages and standard formulas that have not been overridden by the analyst who is really the “programmer”. The use of an Excel spread sheet, where line by line and year by year figures must be estimated and individually entered may be a more reliable way to perform a DCF especially when the property is encumbered by multiple leases. Going line by line will make the analyst think more about the future actions of individual tenants and leases. I have recently informally reviewed the DCF analyses in the appraisals of over seventy five income properties in twenty seven states with a concentration in multitenant office buildings. I have been astounded to see many commercial appraisers continuing to estimate that rents and expenses of multitenant properties will still escalate on a straight line basis over a 10 year holding period using annual escallation factors of 2.5 to 3 percent in their DCF analyses. They are obviously ignoring the lessons of the past 4 years and the post WWII history of recessions. Since WWII, recessions have occurred in a range of two to ten years with two and ten year hiatus being atypical. Most occur every four to eight years and often close to national elections. If one is projecting a DCF with a ten year holding period (and how good is anyone’s “crystal ball” forecasting after three or four years anyway?) don’t you think it would be prudent to assume that a recession is going to occur within that time frame? When recessions occur, property vacancy rates increase, rents go flat or actually decline while most operating expenses continue to increase. Where are the true professionals that recognize this and adjust their forecasts accordingly? It is long overdue that the almost rote thinking of how these forecasts have been performed needs to be changed. Now, when a DCF is being created, prudence suggests (and I submit demands) that it incorporate forecasts that do not simply project everything increasing at the rate of 3% over the next 10 years and reflect more sophistication that includes consideration of future economic downturns and recessions.
Best Practices: Statement of Business Purpose Thursday, February 2nd, 2012By Janet M. Dery, Esq. Commercial lenders must take great care to ensure that their commercial loans do not become subject to the myriad consumer protection laws that govern non-commercial transactions. Especially in today’s environment, where the actions of lenders are coming under ever stringent scrutiny, defending commercial transactions from attack under consumer protection laws is more important than ever, as failure to do so can result in penalties and fines to the lender, or, in a worst case scenario, the loan being deemed to be unenforceable. While there are numerous consumer protection laws in existence today which also apply to commercial transactions, such as the Equal Credit Opportunity Act, which limits the factors upon which a creditor may base its credit decision (i.e. discrimination based upon race, color, religion, national origin, marital status, age, etc. is prohibited), and the Fair Credit Reporting Act (obligating lenders to notify an individual when it takes adverse action in response to an individual’s credit report), in general, commercial lenders want to avoid the burdensome obligations of compliance with consumer protection laws on their commercial loans.
There are many instances in a commercial transaction where lenders can avoid triggering the applicability of consumer protection laws. The documentation of the commercial loan is an important step in this process. This is especially true when the borrower or a guarantor on the loan is an individual, and even more so when collateral for the commercial loan includes assets unrelated to the business, such as a personal residence.
Following are some simple steps a lender can take to ensure its loan documentation clearly reflects that the loan is a commercial loan:
By following the steps set forth above in documenting commercial loans, lenders will make it much more clear to any court or any regulator who may be reviewing the loan file that the loan was made solely for business purposes, and not for any personal, household or consumer purpose, thus will minimizing the chance that the lender will be faulted by regulators or that debtors will be able to hamper enforcement activates by the lender by relying upon consumer protection laws.
For more information on keeping consumer protection laws out of your commercial loan transactions, contact Janet at 215-542-7070, or jdery@starfieldsmith.com. Rebuilding American Manufacturing in Central Pennsylvania Tuesday, January 31st, 2012by Karen Mills on 1/25/12 SEEDCOPA SBA 504 Borrower Always Bagels provides SBA Adminstrator Karen Mills with plant tour Last night I had the honor of attending President Obama’s State of the Union Address as a member of his cabinet. In the speech, the President laid out his vision for an economy that’s built to last. It’s an economy based on American manufacturing, American energy, skills for American workers, and a renewal of American values. I had the chance see one of those pillars in action today. Today I visited Always Bagels in Lebanon, Penn. Always Bagels is exactly the kind of manufacturing facility President Obama was talking about in his State of the Union. This is a business that’s growing, creating jobs, and driving our economy forward. Always Bagels started as a retail bakery 20 years ago. Now they are a major manufacturer with two plants. Always Bagels currently produces over 400,000 bagels a day. So when they say “Always Bagels”, they mean it! Always Bagels has already been helped by this administration. Two years ago, the firm got an SBA Recovery Act 504 loan to buy their second plant. With the new plant, company president Tony Pariti, was hoping create 80 new jobs within three years—but Always Bagels has been so successful that they now employ over 100 people. Thanks to policies like the Recovery Act, American manufacturing is creating jobs for the first time since the late 1990s. Last night the President proposed new tools to build on this success and make sure that small manufacturers like Always Bagels continue to have the wind at their backs. He called for lowering the tax rate for companies that manufacture and create jobs in the United States. He also proposed reducing regulations that get in the way of entrepreneurs who want to start and grow a business. And he called on Congress to continue the payroll tax cut which gives millions of Americans a little extra money to spend at local small businesses. These tools will mean more support for small manufacturers like Always Bagels, more good jobs and more products stamped “Made in America.” We need to move forward and rebuild the economy. We need to make sure that small businesses have the tools they need to grow and create jobs. We need an economy built to last. |
By: Harris Eckstut
Co written by: Patrick O’Rourke, a restaurant operations specialist and teacher, one of the founders of the upcoming Philadelphia Mobile Foods Association.
Taking it to the streets:
In the world of business, there is more than just taking one’s passion and opening one’s business doors – or in this matter, opening the truck window.
The Gourmet Truck business is one of the hottest areas of growth in America. Take for example Quick Service Restaurant’s take on the Food Bicycle http://www.qsrmagazine.com/consumer-trends/food-bikes-could-be-hottest-new-trend?microsite=595+4113
While very popular in California and warm weather climates, Gourmet Trucks are now moving into the chillier climates. The new wave of high quality coming out of food trucks has brought upon us the great delights of talented young folks of all backgrounds finding their passion of putting food service on wheels.
With the growth of a new area of any industry, there are many new challenges created because of government enforcement of outdated codes of rules & regulations specific for different types of businesses, implementing funding and lending applications that don’t fit the new needs, marketing challenges, and many other aspects of business where square pegs are trying to be put into round holes.
Surprising Roadblocks:
At first one would think operating a food truck might be less expensive than a bricks & mortar restaurant. Oftentimes this is not true.
One example is that many health departments might not approve the gourmet food truck for use unless the business produces it’s food in a health department approved commercial kitchen – i.e. – bricks and mortar.
And since trucks are on wheels and park on streets, there are new governing bodies besides the business code department (L&I in Philadelphia) and the local health department that become involved including:
- the local streets department
- state motor vehicles
- local traffic police
- possibly state department of transportation, etc. etc., etc.
- If selling pre-packaged items produced by the operator, then there is the State Department of Agriculture and/or Federal agency or two.
And, I can almost guarantee there is no one out there in the governing agencies reaching out to other agencies in hopes of coordinating efforts to help the individual businesses find their way through the maze of laws, codes, rules, etc.
Worse, these regulating authorities are being guided in their enforcement by codes that were made long before business/liberal arts/culinary schools grads began to create and invent the newest of gourmet culinary concepts to travel and cook on wheels.
Where is the Map?
From these and many concerns not only by the business owners but also the public that follows its favorite “truckees” as well as agencies empowered to protect the public, Mobile Food Vendors Associations (a/k/a Food Truck Associations) are forming throughout the country.
In Philadelphia, The Philadelphia Mobile Food Truck Association – http://phillymfa.org/ is in its formative stages under the leadership of Dan Pennachietti of Lil Dan’s Food Truck and Andrew Gerson, of the soon-to-be Strada Pasta truck.
Since December the Association has been on the fast truck-track expecting its incorporation by the first week of March and by mid-Spring to be in full gear working. The Truckees and others associated in the gourmet mobile food industry will be leading the way in mediating issues of code enforcement and regulations, parking locations, communicating among the truckees with their loyal followers andwith regional event organizers, as well as promoting this new and exciting way of enjoying the streets of Philadelphia.
By: Alan Mandeloff, CPA/PFS, CFP
The stock market has gotten off to a very strong start in 2012, with the S&P 500 Index up more than 4% in the month of January. We believe this strong showing is the result of two major factors. First, investors remain vigilant in seeking alternatives to the anemic rates being offered for cash and short term fixed income investments. Second, earnings reports for the fourth quarter of 2011 indicated that companies continue to enjoy solid earnings. This makes the stock market, on the basis of price earnings multiples, look attractive. Also, guidance by companies about their future earnings was better than many expected.
Given the January performance, it would be easy for investors to become overconfident about the direction of the stock market. It has been well publicized that the average retail investor has refrained from participating in the strong recovery, as the scary days of early 2009 when the market bottomed out are not yet a distant memory. If strong monthly performances, like the one we just experienced, become more common, the retail investor will not be able to stay on the sidelines any longer. All too often, however, that investor decides to make an appearance in the market at the worst possible time. In that scenario the one who benefits is the one who is happy to sell his or her stocks at inflated prices to the unwitting newcomer.
How can the average investor avoid falling into this trap? Quite simply, by having an investment strategy that appropriately allocates dollars between the various asset classes. Knowing how to allocate is not always easy. A good investment manager knows his or her client’s financial situation and fashions a model accordingly. The model has to be monitored and periodically re-balanced. In an overwhelming number of instances, it is a mistake to completely abandon stocks in favor of cash and/or bonds. If an investor was smart (or lucky) enough to be out of the stock market during the period leading up to March of 2009, the strong likelihood is that he or she would not have known when to redeploy cash into stocks.
By keeping investment dollars diversely allocated an investor has the best chance to keep strong months, like the one we just enjoyed, in his or her proper perspective.
Alan Mandeloff, CPA/PFS, CFP is president of Citrin Cooperman Wealth Management, a registered investment adviser that provides personal financial planning, investment management and insurance design and brokerage. Citrin Cooperman Wealth Management is an affiliate of accounting, tax and business consulting firm Citrin Cooperman. Alan can be reached at 215-545-4800 or amandeloff@ccwmlp.com.
By Joseph A. Ernst, Esq.
Under SOP 50 10 5(D), the general rule is that an SBA-guaranteed loan may be used to finance a change of ownership that includes intangible assets. SOP 50 10 5(D), pages 139-140. Intangible assets are specifically noted as including goodwill, client/customer lists, patents, copyrights, trademarks and agreements not to compete. Some of the more specific rules regarding financing intangible assets are:
- If the intangible assets are in excess of $500,000, the borrower and/or seller must provide an equity injection of at least 25% of the purchase price of the business for the application to be processed under delegated authority, otherwise, the loan must be processed under general processing; and,
- The seller’s portion (if any) of the required 25% equity injection is in the form of seller take-back financing, but the seller take-back financing must be on full standby for at least 2 years.
When what would have once been a single EPC/OC loan is now bifurcated into two separate loans in order to comply with the new prohibition in the SOP 50 10 5(D) regarding an EPC’s use of loan proceeds, the vexing issue is what exactly is the purchase price of the business – is it the purchase price of the business assets alone or the purchase price of the business assets and the real estate?
The SOP 50 10 5(D) mandates that the purchase of the business assets (including the intangible assets) and the purchase price of the real estate must be combined or aggregated to determined the required 25% borrower and/or seller equity injection for delegated processing. This aggregation of the purchase price that is now financed by two separate loans is required by the dictate in the SOP 50 10 5(D) that: “The ‘purchase price of the business’ includes all assets being acquired, such as real estate, machinery and equipment, and intangible assets. Real estate may not be removed from the transaction and financed separately to avoid the 25% equity injection for PLP processing” [emphasis added]. SOP 50 10 5(D), page 140. This dictate plainly means that the lender cannot avoid the 25% equity injection PLP requirement by deciding to separately finance the real estate, and through such means just use the purchase price of the business assets for determining the required 25% equity injection for delegated processing. Even though the lender is now required by the SBA to remove the real estate from the transaction and finance the real estate separately, it would be highly imprudent for a lender to interpret this requirement to mean that SBA mandated loan bifurcation permits or allows the lender to strip away the real estate purchase price and just look at the purchase price of the business assets. If (i) the purchase price of the intangible assets is in excess of $500,000, (ii) the lender proceeds under its delegated authority, and (iii) the lender elects to only use the purchase price of the business assets to determine the required 25% equity injection, then lender is likely to encounter a denial or repair of the SBA Guaranty.
