It’s a good time to pursue financing through the U.S. Small Business Administration (SBA). The economy is growing, unemployment is low and entrepreneurs are cautiously optimistic that opportunities exist to expand their businesses.
One challenge many of these leaders face is the approach that is taken to obtain financial support, says Steven Chaker, MBA, senior vice president and regional SBA sales manager at Bridge Bank.
“The market in the SBA world is available to them,” Chaker says. “The problem is they don’t know how to approach lenders to get the right application and the right uses of funds. They might have a good plan and a good idea in their mind about what they want to do with their business. But they can’t translate it to the lender and say, ‘Here’s what I want to do. Let’s move forward.’”
Smart Business spoke with Chaker about the right approach to take with lenders as well as some of the changes that affect the SBA program.
What are some advantages to working with an SBA lender?
First of all, in every bank, there is a commercial lender and an SBA lender. Most banks also have an asset-based lender. Most borrowers ask for a working capital line of credit because that’s what they know how to ask for.
There are several problems with this. Sometimes the request is too small for a commercial lender to look at. It may also be that the potential borrower does not have the qualifications for a commercial lender to look at their plan or their receivables may not be big enough.
Most borrowers look for working capital as a way out of an issue that they are facing. They may have incurred a little bit of debt and at the time, it looked good and made sense. But now they are paying too much per month and so they see working capital as a way out.
A better solution would be to refinance and consolidate what you have outstanding and reduce your monthly payment.
You’ll be better off taking this approach than asking for additional debt on top of the debt you already have incurred. SBA lenders know how to talk to people in these situations and help them find the right solution that best fits their needs.
These lenders can take the time to look at your plan and offer feedback on what’s good about it and what might require some adjustment.
The key is having a clear idea of what you want to do and the ability to convey it in a concise manner. It might be a good idea to work with a CPA or broker who can help you develop your plan and make a strong presentation to your potential lenders.
How have recent changes affected the financing market for SBA loans?
The SBA announced last year that it was eliminating or revising several requirements for its two main loan programs, 7(a) and 504. The rule change expands eligibility, makes it easier for small businesses to secure SBA-backed financing and encourages job creation.
The changes include the elimination of the personal liquidity test, which benefits borrowers by adding flexibility in the management of their allocation of personal resources to the small business.
Prior to this change, if the business owner had too much liquidity in his or her personal accounts, that owner would not qualify for SBA financing. The thought process was that potentially good business owners were being turned away. If you have too much liquidity, that makes you a good candidate for support.
Finally, it was announced that a temporary program set up to allow small businesses to refinance commercial real estate mortgage debt with a 504 loan has ended.
The program was created in the wake of the economic downturn to give small business owners another tool to remain viable and protect jobs.
With the economy improving, the program was viewed as no longer necessary.
Refinancing a 504 with 7(a) is still allowed, if both the first and the second deeds of trust are included. ●
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