There’s been a recent increase in U.S. Small Business Administration (SBA) lending across the nation, and Northeast Ohio is no exception. The region is experiencing an increase in new requests as projects put on hold during the recession restart. Companies know that capital has opened up, and many are utilizing SBA programs.
“Things continue to pick up, and we get more calls each day with new opportunities,” says Ron Schultz, vice president and commercial relationship manager at First Federal Lakewood.
Smart Business spoke with Schultz and Matthew Lay, vice president and commercial relationship manager at First Federal Lakewood, about the possibilities that SBA lending brings for businesses.
How are SBA loans typically used by companies?
Businesses typically use SBA loans, which are a guarantee on financing, for commercial real estate, equipment purchases, working capital needs and acquisitions. The loans are very useful when there is a collateral shortfall. In general, the maximum loan amount is $5 million with a minimum of 10 percent down.
7(a) loans are the most popular. They have a broad scope and provide the bank a guarantee on the funds, with up to a 25-year term and amortization. 504 loans, for real estate and large equipment purchases, are administered through a local community development corporation. And the Community Advantage loan, for up to $250,000, has increased in popularity over the past 24 months.
Who can qualify for these?
Nonprofits, lending institutions and investment properties are ineligible for SBA funds. Otherwise, most small business organizations are eligible. Revenue, employees size and balance sheet metrics are all considered.
The SBA will only approve funding for owner-occupied commercial real estate, which means the operating company must occupy at least 50 percent of the building.
Why do many business owners equate SBA lending with startups or early stage businesses?
Traditionally newer companies have had success with SBA products because of the following advantages:
- Low down payments.
- Extended terms and amortization.
- Better fixed-rate options for a longer period of time.
However, existing or mature companies should certainly review all options with their bank as well, including SBA financing. In many cases expansion projects are based on projections, and the SBA has more comfort with projections versus historical numbers when compared to traditional funding.
Business owners may be initially unsure because of fees or paperwork hurdles, but that becomes secondary when they realize the benefits.
It also helps when you work with banking experts who know how to appropriately package a deal prior to sending it to the SBA.
If a business owner wants to learn more, what are his or her next steps?
The best way to get started is to contact your banker and learn about the various products and services that can help you accomplish your financing goals. Traditionally, banks consider conventional options first, and then research if the deal can be structured by utilizing an SBA program.
Often you can work with community organizations to put your company in a better position to get funding. These include the county, the Economic Community Development Institute or the local chapter of the SCORE Association, a nonprofit association of the SBA that advises and mentors entrepreneurs and business owners. The SBA also has several configurations that can help facilitate projects that are pending or approaching completion.
While an SBA loan won’t be a fit for every business, it just may be an exceptional way to grow yours.
Insights Banking & Finance is brought to you by First Federal Lakewood
