Whether a start-up or established,
businesses often need to borrow
funds to operate. One lending option that has been around since 1953 is
sometimes overlooked due to lack of
knowledge or misunderstandings. The
Small Business Administration (SBA) loan
program is not for everyone, but has some
definite benefits for companies and owners that are in a position to take advantage
of them.
“There are only about 50,000 to 60,000
SBA loans approved nationally each year
and most lenders only do 10 or 12 per
year,” says Edward H. Holmes, president of
Centinel Financial Corporation in Plano.
Centinel is the SBA consultant ViewPoint
Bank uses to package its SBA loans. “As
with most governmental programs, it’s
hard for most people to justify the time and
expense to keep up with the constant
changes in policies and forms. Individuals
who specialize in working with these kinds
of programs can help provide a win-win situation for the borrower and the lender.”
Smart Business talked with Holmes for
more insight on SBA loans.
How are SBA loans different?
An SBA loan is actually a commercial
loan granted by a lending institution that is
partially guaranteed by the SBA. The SBA
was created to assist small businesses in a
variety of ways. One of the ways is to help
businesses start, grow and expand by making funds available that wouldn’t be available in other ways. The idea is that as businesses grow so does the economy, and the
government is provided an increased tax
base.
Advantages of SBA loans include longer
repayment terms, more flexible terms,
lower down payments or capital injection
and competitive interest rates. It can also
be easier to qualify for these loans.
Who should consider an SBA loan?
New businesses are especially suited, as
it is easier to obtain an SBA guaranteed loan than a conventional one when there is
not enough collateral or past history to go
on. It is possible to start a business with 30
percent owner-infused cash and 70 percent
loan funds. SBA loans are also well suited
to growing companies that have most of
their assets in accounts receivable or
inventory. Banks classify these as ‘soft
assets’ which have less collateral value to
the bank than hard assets such as real
estate and equipment.
SBA loans are available to for-profit businesses that are owner-operated. Businesses formed for investment purposes,
newspapers, speculative ventures, churches and some other types of industries are
not eligible, however, most types of businesses qualify for SBA assistance.
What are the potential drawbacks?
They are paperwork intensive, at least in
the application process. They may be a little more expensive upfront, but these fees
can generally be financed in the loan. They
can take a little longer to process. While
conventional loans usually can be processed within 30 days, most SBA loans
require up to 60 days.
Some people may feel that an SBA loan can open the business up to more government scrutiny. That is a false assumption.
Once the loan is approved, the company
only deals with the bank.
What can an SBA loan be used for?
Loans can be used for almost any business purpose. Uses could include real
estate acquisition or construction, permanent real estate financing, capital improvements, equipment purchases, business purchases, working capital and business startups.
How would one apply for an SBA loan?
An SBA lender like ViewPoint Bank can
help fill out the application. When the
application comes in for packaging, we
would make sure all the forms are filled out
in accordance with current regulations and
evaluate your needs along with those of the
bank and the SBA.
Information needed includes business
and personal financial statements, a business plan, owner’s personal tax returns,
and historical and background information
about the business. A personal résumé and
background information is especially
important for new businesses. The decision-makers need to know if you have the
experience and background to start and
run the proposed business. They are also
going to look at the industry and its risk
potential.
After all the paperwork is complete, it
first goes to the bank for approval and then
to the SBA. Once the loan is approved by
the SBA, the bank will work with the business owner to close and fund the loan.
To learn more about SBA loans, go to
viewpointbank.com’s business banking
section or call (972) 801-5775.
EDWARD H. HOLMES is president of Centinel Financial
Corporation. Reach him at (972) 985-3225 ext. 201 or at
[email protected].
