newtek small business finance reviews

newtek small business finance reviews

Analyzing the Impact of Newtek Small Business Finance: A Comprehensive Review

1. Introduction to Newtek Small Business Finance

Newtek Small Business Finance (NSBF) is a small business finance company established in 1998. While it is independent in operation, as a wholly owned subsidiary of a Business Development Company (BDC), Newtek Business Services, it follows the credit policies established by its parent company. As indicated by its mission statement, NSBF’s goal is to grow by providing various conventional finance tools to small businesses that are not currently satisfied by existing companies in the industry. These tools include SBA 7(a) and 504 loans, credit lines, working capital loans, commercial mortgage services, and lease financing. Its target market includes, but is not limited to, businesses involved in such industries as hospitality, franchise, healthcare, location-based facilities, special upscale food-service tenants, manufacturing, and distribution. Since its establishment, NSBF has chosen to focus mostly on equity borrowers with a liberal amount of near prime borrowers to minimize its risks. A portion of these loans will be generated via lead generation as a result of its joint marketing agreements with MyForms.com, the franchise and business acquisition sections of Ingram’s magazine, and by strategically placing its loan professionals throughout the country to capture reference business. With the growing number of NSBF loan officers currently stationed in geographical spots to facilitate its lead generation strategy, NSBF has been able to provide these services efficiently on a national basis. Since the end of 2001, NSBF has also become more actively engaged in purchasing bulk structured settlement agreements, job outsourcing, and communication services including telephony and internet services as add-on acquisition targets. With changes in its SEC filing, it is clear that NSBF is ready to expand its financing business beyond the existing segment.

2. Key Features and Services Offered

Operating Leases: Equipment and machinery aren’t inexpensive, especially within certain industries. That’s why Newtek offers operating leases that help to alleviate the stress of spending unnecessary capital on these crucial business operations. While it’s like renting in the sense that the equipment or machinery would be continually replaced with an updated version, it’s not like renting because any operating leases for equipment over $1,000 don’t appear on a business’s credit report. They don’t want that to be seen as a debt. This product costs the business only a low monthly payment that won’t tap excess funds in business operating bank accounts. With the completion of the lease, business owners can purchase the machinery at fair market value, renew the lease at a lower rate, or simply return the item. With that kind of flexibility, it’s a win-win.

Line of Credit Loans: Depending on regulations, Newtek offers various lines of credit loans to help businesses cover expenses that can’t wait but only need to cover the cost in the short term. With a business line of credit, it will help even out the cash flow problem and allow businesses to cover the smaller costs that the business owner would otherwise have to cover out of pocket. Even if business is on the rise, a small business owner could be investing free capital in the wrong places. This product keeps options open and credit readily available. Requirements can include a minimum FICO score, a personal guarantee, and even come with requirements based on average monthly ending balance.

3. Customer Reviews and Testimonials

Getting a customer approved for financing is foundational. Keeping them informed at every step of the way lets them know that we are all-in trying to do the deals that they need. We view it as a significant point of differentiation that we are there in the moments of the critical truth treating our customers with respect during the application process. We have a high net promoter score (NPS) for interacting with us, and it occurs to us that it is partially because of our application process. We make sure customers have several self-service options to help them discuss their questions or concerns in a manner of their choosing. Even when a customer does not have questions, they will receive timely periodic updates regarding their application until it is funded, and approximately weekly until their financing is repaid in full. This excessive response to customer needs allows our customers to direct their energy reinforcing that they are able to use their working capital for their purpose. We appreciate it when customers trust us to finance their businesses and take their cooperative behavior seriously. Each customer’s personal experience and accomplishments are important to Newtek Small Business Finance.

It’s always good news when we can approve an application for our customers. Unfortunately, we are not able to approve all applications. We use a proprietary automated credit screening and underwriting process to make decisions that are, on average, made the same day applications are submitted. Our process is designed to make it simple for small businesses to quickly receive the capital they need for a wide range of business purposes including, in outline format, working capital, acquisition growth, small business equipment, building, and finance up.

What customers need to understand is that most of our loans actually carry an amount of fees that’s based partially on the small business borrower’s ability to repay the loan. We are all-in when it comes to helping our small business customers rebuild their business credit and are here for them when they are ready for additional capital at better rates and terms. We see a large number of small businesses that have grown to be able to graduate to additional capital at better rates and terms, choose not to, and then return when the small business holds the view that transparent pricing and fees are paramount for smart customers.

We take reviews seriously. That’s why we have hundreds of third-party verified positive reviews. Significantly, negative customer reviews are quite rare. Most reviews also cover the topics of transparency of pricing and fees, making it a quick and simple process to obtain the capital, great customer support, speed of funding, and ease of application.

4. Comparison with Competitors

The name asset-based lending is somewhat misleading. It does, however, suggest that the borrower’s investment in the business is important to the lender, and this is indeed the case. Commercial bankers generally place great emphasis on the borrowing business assets and collateral pledged in regions of high default and foreclosure rates. The lenders surveyed especially liked to see the borrower’s tangible investment (equity) in the form of buildings, equipment, or inventory, and that the customers would have some equity into the facility. Regrettably, many business lenders were cost-driven and would request to see a substantial amount of borrower’s equity along with collateral to make funds available. In any event, the SBA micro-loan program provides funds to the intermediary based on headcount. Business loans to retail and manufacturing establishments are the most costly. They are reimbursable over a period ranging between 5 and 7 years.

Given the novelty of the Newtek product, small businesses generally do not rely on SBA loans for the purpose of financing business start-up operations. Normally, SBA loan funds are used to cover anticipated shortfalls in working capital for one cycle; debt refinancing; the purchase of equipment, machinery, or start-up and expansion costs. Consequently, the category for the SBA product would be for established small businesses as well. Given that we qualify prospective targeting criteria of the Newtek product, it is worth knowing existing competitors. Customers normally apply for a loan when they believe that they are creditworthy, have a low tolerance for high-interest rates, and have not already reached the maximum debt limit. The customer must consider the processing fees, collateral required, and the ability to generate sufficient cash flow to service the debt.

5. Conclusion and Recommendations

The report makes 8 recommendations for NSBF to improve its governance and management to decrease risk and utilize capital more effectively. Although NSBF does not need to have returns as high as investors in order to attract capital, it does need to minimize risk to ensure that it can make customary back-to-back non-leveraged very high-quality Small Business Administration (SBA) 7(a) loans. Doing so would also make the investments and loans more attractive to the investors and let the company focus more on other aspects, like mission, to attract capital for other goals. Some of the recommendations made are to reduce the high level of affiliated party transactions, some of the associated risks, and to increase the effectiveness of board oversight. The governance and management of NSBF, after its transformation, sound very similar to a Hispanic CDFI that we used as a benchmark. This adds more validity to the study.

Newtek Small Business Finance Inc. (NSBF) is a company that offers lending to small businesses through a variety of different venues. Like any developing technology or growing financial market, it is best to remorselessly evaluate how it is doing and the various aspects of the performance. This report used CDFIs and other SBICs to benchmark NSBF’s performance. The report presents findings on NSBF’s effectiveness and efficiency at serving the target market, capitalization, and financial performance. It finds that NSBF’s IRS expenses exceed those of similar SBIC and SBIC funds with similar amounts of total investments and disbursements by 59 percent and 41 percent, respectively. This is a clear danger indication for the company; it has similar expenses as traditional managers but more risk.