NEW YORK As the federal government reveals the fine print of its financial bailout plan, restaurant operators are poised to benefit as more aid is headed to banks and lenders to help spark small business and consumer financing.
Apositive for the restaurant industry by almost all accounts, the government’s efforts include $1 trillion to help stimulate the secondary loan market through the Term Asset-Backed Securities Loan Facility, or TALF, and $15 billion to purchase securities backed by the Small Business Administration 7(a) and 504 lending programs.
“It’s a beautifully simplistic solution,” said Christine Reilly, president of CIT Small Business Lending. “Once lenders have liquidity they can turn around and start turning their application flow back on. I would hope in a couple months you see things start to move.”
Lending through the Small Business Administration, or SBA, had slowed to a trickle starting last fall and has yet to pick up, mostly because the secondary market — where loans are packaged and sold to investors as securities — shut down in the chaos of the financial sector’s meltdown. Even as the nation’s largest SBA lender, CIT shut down new lending as it was unable to sell its loans to free up its balance sheet.
“Investors were running for the hills,” Reilly said. “That had a dramatic impact on lending.”
Now, as President Barack Obama and his economic team detail plans for a public-private hybrid investment fund to purchase troubled assets from banks, along with more transparency from firms that had received federal bailout funding, a thawing of the credit markets may begin. Other moves specifically targeted toward SBA lending include the reduction of borrower fees and a federal guarantee of up to 90 percent of 7(a) loans.
Independent restaurant owners, franchisees and large chains all have been plagued by a lack of access to credit. It has impeded growth, stalled location sales and, at times, forced closures of businesses that need credit to survive. Some restaurant operators have stepped up to aid franchisees or potential franchisees find financing. The most recent, Bruegger’s Enterprises Inc., said this week it has teamed with Diamond Financial to help franchisees looking to expand or potential franchisees assess their SBA loan potential.
“By joining forces with Bruegger’s, we are trying to give the franchisee confidence and motivation during these tough lending times,” said Don Johnson, business finance consultant and principal of Diamond Financial. “Criteria is more stringent, but we’ve found that SBA lenders are still granting loans. In fact, these are the best rates in the last five years.”
Contact Sarah E. Lockyer at [email protected].
