The Pathway Lending Energy Efficiency Loan Program Has Arrived

Today was an historic day for Pathway Lending, at 10:00 this morning Governor Bredesen, Commissioner Matt Kisber, Ken Breeden (TVA), Hugh Queener and Clint Gwin, President of Pathway Lending, announced the $50 million program we have been working on for over two years.

If you haven't heard, our low interest loans, initially offered at a fixed 5%, with terms up to 10 years can finance 100% of energy efficiency and renewable energy projects for businesses in Tennessee. We're excited to be part of the State of Tennessee's efforts to grow its green economy, create jobs, and make our existing businesses stronger in the global economy.

We invite Tennessee businesses to visit our website to learn more about this program. We will also be hosting a series of free lunch and learn events across the state of Tennessee during the month of September. If you're interested in implementing a project, or a part of the larger green sector in Tennessee, we encourage you to RSVP. Click here to view of Calendar of Events and RSVP!

The following photos are courtesy of the State of Tennessee:

NFIB: Small Business Credit Needs Met...Perhaps.

I wanted to share the following article from the National Federation of Independent Businesses. Once again, the article has a primarily negative outlook for small businesses in the next six months. This is nothing new (see every other survey that we've referenced!).

But, one thing I did find interesting was the views toward capital accessibility at the bottom of this article. Unlike other surveys, where access to capital (or the lack thereof) is the primary concern for small business owners, this survey reveals the following:

Overall 91 percent of the owners reported all their credit needs met or they did not want to borrow, up one point. Only 4 percent reported financing as their top business problem.

Now, this may be similar to unemployment rates, which decrease as the unemployed develop 'job search fatigue' and just stop looking. Perhaps, the majority of small business owners know what their banks will say, and have just decided to make due with what they have.

I would like to think that this is due to alternative forms of capital making their way into the market, lenders starting to think more creatively, and small business owners operating in a more streamlined manner. Perhaps, this is wishful thinking.

However it is possible as organizations like Pathway Lending - as well as a number of other Community Development Financial Institutions - have been deploying record amounts of capital to small businesses.

The Opportunity Finance Network states in its Q1 2010 Report that: "the percentage of CDFIs reporting capital constraints fell sharply in the first quarter to 28% after hovering at or near 50% in each of the previous five quarters."

This is good news. As more CDFIs and alternative lenders do not have capital constraints, more small businesses that do not fit neatly into traditional lending portfolios will have greater access to loan capital.

Negative Outlook for Improved Business Conditions Forces Small Business Optimism Index Lower in July--------------------------------------------------------------------------------

Contact: Melissa Sharp 202-314-2068

WASHINGTON, August 10, 2010 – The National Federation of Independent Business Index of Small Business Optimism lost 0.9 points in July* and reached 88.1 following a sharp decline in June. The Index has been below 93 every month since January 2008 (31 months), and below 90 for 24 of those months, all readings typical of a weak or recession-mired economy. Ninety percent of the decline this month resulted from deterioration in the outlook for business conditions in the next six months.

“The recovery in optimism that we are currently experiencing is very weak compared to recoveries after the 1982 and 1975 recessions,” said Bill Dunkelberg, NFIB’s chief economist. “The small business sector is not on a sustained positive trajectory, and with this half of the private sector missing in action, the economy’s poor growth performance is not surprising.”

Employment
Average employment growth per firm turned negative in April of 2007 and remained negative for 11 of the 13 following quarterly (first month in each quarter) readings, ending with a negative 0.15 in July (seasonally adjusted). July actually is an improvement from recent months where average declines of workers per firm were negative 0.48 in May and negative 0.28 in June.

In July, 10 percent (seasonally adjusted) reported unfilled job openings, up one point from June but historically very weak. Over the next three months, 9 percent plan to increase employment (down one point), and 10 percent plan to reduce their workforce (up two points), yielding a seasonally adjusted net 2 percent of owners planning to create new jobs, up one point from June and positive for the third time in 22 months.

Capital Spending and Outlook
The frequency of reported capital outlays over the past six months fell one point to 45 percent of all firms, one point above the 35-year record low reached most recently in December 2009. The percent of owners planning to make capital expenditures over the next few months fell one point to 18 percent, two points above the 35-year record low. Five percent characterized the current period as a good time to expand facilities, down one point. But a net-negative 15 percent expect business conditions to improve over the next six months, down nine points from June and 23 points from May.

“Owners do not trust the economic policies in place or proposed, and they are distressed by global and national developments that make the future more uncertain,” said Dunkelberg.

Sales and Inventories
The net percent of all owners (seasonally adjusted) reporting higher nominal sales in the past three months lost one point, falling to a net-negative 16 percent, 18 points better than June 2009 but indicative of very weak customer activity. Unadjusted, 26 percent of all owners reported higher sales (last three months compared to prior three months, up three points) while 33 percent reported lower sales (down two points). Widespread price cutting continued to contribute to reports of lower nominal sales.

The net percent of owners expecting real sales gains improved one point over June, rising to a net-negative 4 percent of all owners (seasonally adjusted), still quite dismal. Not seasonally adjusted, 26 percent expect improvement over the next three months, 28 percent expect declines.

A net-negative 19 percent of all owners reported gains in inventories (more firms cut stocks than added to them, seasonally adjusted), two points better than June but a very weak number. July 2010 is the 28th negative double-digit month in a row for inventory gains, and the 38th negative month in a row. Unadjusted, 10 percent reported gains in inventory stocks (unchanged), but 25 percent reported inventory reductions (down two points). Plans to add to inventories (on purpose) declined one point to negative 4 percent of all firms (seasonally adjusted).

Inflation
The weak economy continued to put downward pressure on prices. Twelve percent of owners (down one point) reported raising average selling prices, and 24 percent reported average price reductions (down three points). Seasonally adjusted, the net percent of owners raising prices was a negative 12 percent, a two point increase in the net percent raising prices. July is the 20th consecutive month in which more owners reported cutting average selling prices that raising them.

“With no pricing power and real sales volumes weak, profits are not able to recover,” said Dunkelberg.

Earnings
Small business owners’ reports of positive profit trends worsened by one point in July, registering at a net-negative 33 percent (29 points worse than the best expansion reading reached in 2005).

“Profits are important for the support of capital spending and expansion, so this trend does not signal much growth for the small business sector in coming months,” said Dunkelberg. Not seasonally adjusted, 18 percent reported profits higher (up 2 points), but 45 percent reported profits falling (down 2 points).

Owners continued to hold the line on compensation, with 8 percent reporting reduced worker compensation, and 12 percent reporting gains. Seasonally adjusted, a net 3 percent reported raising worker compensation, only 5 points better than February’s record low reading of negative 2 percent.

Credit
Regular borrowing gained three points in July as 32 percent reported accessing capital markets at least once a quarter, but still near record lows. A net 13 percent reported loans harder to get than in their last attempt, unchanged from June. However, overall 91 percent of the owners reported all their credit needs met or they did not want to borrow, up one point. Only 4 percent reported financing as their top business problem.

*The July survey is based on 2,029 small business owner respondents of a random sample of NFIB’s member firms surveyed through July 31.

NSBA - Mid Year 2010 Report

Earlier this month the National Small Business Association released its 2010 Mid-Year Economic Report, which included survey results from more than 400 small business owners represeting every industry in every state of the nation.

The report provides some bright spots for the period between December 2009 and July 2010:

- An increase in the number of small businesses reporting an increase in revenues from 22% to 26%.
- An increase in the number of small businesses reporting an increase in profits from 19% to 24%.
- An increase in the number of businesses reporting existing growth from 7% to 9%.

However, the overall mood of the report reflects the mood of the economy: uncertain, worried, and focused on decreasing optimism, confidence, and business growth.

Small business owners overwhelmingly expect the economy to remain flat and generally uncertain. The upbeat nature of many entrepreneurs is beginning to wane. Confidence is slipping - down from 61% to 59% in the past six months. Although the majority of small business owners are confident about the future of their business, the fact that well over one-third (41%) have concerns about the on-going viability of their business is not good.

These issues are further reflected when discussing projected job growth, as economic uncertainty and growing concerns over viability do not lend themselves to expansion activities. Just six months ago 24% of small business owners projected increases in their number of employees. Today, only 22% are making such projections. Fortunately, there was also a decline in the number of small businesses projecting job cuts.

Given the historic role small business has played in job creation, any trend in net job cuts should be alarming. Furthermore, the decreases in job growth projections indicate a strong need to support small business growth and ensure impediments, such as the inability to finance growth, are removed. Creating an environment where small businesses can start, thrive, and grow will surely enable to U.S. to move more promptly toward lasting economic recovery.

More small businesses are turning to loans to support their daily business activities. As traditional banks have tightened their underwriting standards - to include increased collateral requirements, greater focus on cash flow, and higher personal credit thresholds, including credit scores - alternative sources of capital, like Community Development Financial Institutions, have found ways to become more flexible and meet the diverse range of financing needs in the small business lending community. For these "alternative" or "non-traditional" sources of capital job growth and economic expansion is often the mission.

For more information on Pathway Lending's financial products and services, visit our website www.PathwayLending.Org.

Minding the Gaps: Pathway Lending and the Small Business Credit Crisis

Over the past few months the Federal Reserve System’s Community Affairs office hosted more than 40 meeting as part of an initiative titled ‘Addressing the Financing Needs of Small Businesses’. The goal of this series was to gather information and perspectives to help the Federal Reserve address the immediate and intermediate credit needs of small businesses.

On July 12, 2010 Ben Bernanke, the current Chairman of the Federal Reserve Bank, spoke at a capstone event to summarize the findings of this series of meetings. Below, is a summary of the identified credit gaps and how Pathway Lending can provide solutions for your business.

Identified Credit Gaps

Lines of Credit and Working Capital:
• Small businesses reported that existing lines of credit had been reduced, hampering their ability to offset lower cash flows that stem from slower sales or slower customer payments. As a result, small businesses reported that they had to scramble to meet intermediate financing needs and change their business models to adapt to less credit availability.
• Banks reported reassessing outstanding lines of credit in order to reduce their exposure to losses and minimize their capital needs. Banks also noted that small businesses had changed how they used their lines in the economic downturn, using them for major purchases and salaries rather than as short-term revolving credit. Some banks noted that, in such situations, they have converted lines of credit into term loans, which have higher finance costs.

• Pathway Lending provides expansion capital for the purchase of equipment, permanent working capital, inventory or lines of credit. Pathway Lending will finance up to 80% loan to value for equipment. Our other forms of working capital can range from one to five years and loan amounts are from $35,000 to $500,000.

Refinancing Credit:
• Small businesses expressed concern about their ability to refinance loans, particularly those related to commercial real estate. In some cases, business owners faced an immediate need for cash to repay the balance of their maturing balloon loans, even where the firm had an ability to repay the loan, because of reduced collateral values or tightened underwriting standards.

• Pathway Lending is a certified lender under the U.S. Small Business Association’s 504 Loan Program, which does allow for refinancing under certain circumstances.

Small-Dollar Loans:
• Several small business participants cited the need for small dollar loans, particularly in amounts under $200,000. Microlenders in some markets help address the need for loans under $35,000.
• Larger bank participants acknowledged that they reduced or curtailed small dollar loans altogether because of the expense in time and resources required to make these loans.

• Pathway Lending has originated more than 450 loans totaling more than $40 million to Tennessee small businesses since 1999. Loan amounts begin at $35,000, with an average loan size of about $125,000.

Commercial Real Estate:
• Banks reported that they suffered significant losses in their commercial real estate portfolios. One bank stated that 50% to 60% vacancy rates were not uncommon in his area. Many banks reported that they have tightened underwriting standards in this segment, including requirements for higher borrower equity, stronger debt coverage ratios, lower vacancy rates, as well as stronger personal guarantees.
• Small businesses confirmed these tighter loan standards and noted that, for existing loans, they were required to pledge additional cash or other assets to make up gaps created by commercial real estate that appraised at lower market values.

• Pathway Lending offers loans for building and land purchases for the acquisition of commercial real estate, construction or renovations of owner-occupied real estate. Pathway Lending can lend up to 90 percent of the property’s appraised value. We often partner with the U.S. Small Business Administration and USDA Rural Development so that our clients can take advantage of loan guarantee programs and flexible terms. Loan amounts begin at $35,000.

Patient Capital:
• Both banks and small businesses cited the need for sources of patient capital to assist small businesses in financing equipment and other large purchases. For capital-intensive businesses, such as manufacturing, a larger loan for equipment or materials needs a longer repayment period to provide sufficient time for sales to pick up and generate cash flow for repayment of the loan.

• Pathway Lending offers longer terms for its loans, up to 7 years or the useful life thereof for equipment purchases. As a Community Development Financial Institution, Pathway Lending also has the ability to negotiate with its customers and provide more flexible terms for repayment.

Loans to Distressed Industries:
• Banks reported that they are reducing their exposure to certain industries with high loss rates.
• Small Businesses affected by the reduction in credit within these industries expressed their frustration over their inability to secure loans regardless of the quality of their financial condition.

• Pathway Lending’s mission is to increase access to capital for businesses in distressed, or low- and moderate-income, communities. Pathway Lending makes loans when traditional banks will not. Visit our website for details.

Start-Up Capital:
• Small businesses and bankers agreed that start-up businesses have always had difficulty obtaining financing, and that now it is almost impossible to secure bank credit. At several meetings, participants noted an increased demand for this type of financing, particularly given the number of unemployed workers who are now looking to start businesses.

• Pathway Lending does not provide start-up capital. We typically require applicants to have industry-related experience in order to qualify for a loan. While Pathway Lending may not provide your business with the start-up capital it requires, there are many small lenders who will. Please visit Strategies for Small Businesses at http://strategiesforsmallbusiness.com/. Based out of California, this company provides loans, including start-up capital, to companies across the country.

If your business is growing, and in need of capital, we encourage you to visit our website for more details. There, you will learn more about our products, see if your company fits our lending profile, and have the opportunity to contact us directly.

Apply for a Pathway Lending Small Business Loan Now!