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The truth about government loans Featured

9:35am EDT July 22, 2002

There are many misconceptions about government loans.

Some seeking financing avoid government loan programs, assuming the paperwork and restrictions are insurmountable. Others believe grants -- free money -- for small businesses are plentiful and easy to access.

Here are the facts on nontraditional financing sources like government loans, focusing on the five most common misconceptions we hear at Columbus Countywide Development Corp.

1. I don't want to deal with the paperwork the government wants. I don't have the time or staff to put this information together.

Certified development companies like Columbus Countywide are authorized and screened by the U.S. Small Business Administration. Their staffs are trained to help you gather the information you'll need for your loan application and keep the process as simple and quick as possible. Columbus Countywide staff will visit your business and help you one on one. It also partners with other organizations that help in this endeavor, for free.

2. It takes too long to get a government loan.

Generally, loans for real estate can be approved internally and by the SBA within 30 to 60 days. Most other Columbus Countywide loans have a turnaround of less than 30 days. MicroLoans can be processed and closed in less than two weeks.

3. There are too many out-of-pocket fees.

Most fees are included in the interest rate of the loan or can be financed, so there is little to no out-of-pocket expense. The savings and benefits to the business owner are a fixed interest rate, a typical 10 percent down payment and long terms, which keep monthly payments affordable.

4. The job creation requirements are too strict.

Some programs require the business create one job per $35,000 of the government's portion of the loan amount. This can be confusing. If your total project was $1 million, the SBA 504 financed portion would be 40 percent, or approximately $400,000. Dividing that $400,000 by $35,000 works out to about 12 jobs. These jobs must be created during the first two years of the loan, not immediately. In addition, retaining jobs can count toward this goal. Six of Columbus Countywide's government loans have no job creation requirements.

5. I don't need a government loan. The bank will lend me money.

Business owners use government financing when one of the following factors makes it a good decision for their business:

  • They need a 10 percent down payment program. Cash must be left available for working capital. A greater requirement would seriously strap the business and its chances for growth. Banks usually need more than 10 percent down.

  • A predictable payment with a fixed interest rate is crucial. To plan one- to five-year growth, many need a consistent loan payment for cash flow projections. Bank interest rates are usually variable.

  • A long term to keep the payment affordable is a must. Columbus Countywide has government programs that do real estate financing for 20 to 25 years and equipment financing for 10 years.

  • Government loan programs do not have to be full of red tape. Many misconceptions can be easily cleared up by a loan professional.
How to reach: Columbus Countywide, www.ccdcorp.org, 645-6439 or toll free (888) 756-2232

Brad Shimp is executive director of Columbus Countywide Development Corp.

The top five

Here's a quick look at the top loan programs offered in Central Ohio by Columbus Countywide. This nonprofit organization is authorized by the U.S. Small Business Administration to provide assistance in getting government loans.

SBA 504

Type: Direct loan

Use: Financing for land, buildings or equipment

Owner investment: Typically 10 percent

Term: 10 years on equipment, 20 years on real estate

Interest rate: Fixed

Ohio 166

Type: Direct loan for manufacturing, wholesaling and distributing businesses

Use: Financing for land, buildings and equipment

Owner investment: Typically 10 percent

Term: Maximum of 15 years

Interest Rate: Fixed, two-thirds of prime rate

Pre-Qualified Loan Guaranty

Type: "Pre-Guaranty" from the SBA on loans to businesses owned 51 percent or more by women, veterans or minorities, or businesses located in rural areas or primarily involved in exporting

Use: Working capital, refinancing debt, equipment, inventory and real estate

Owner investment: Typically 10 percent

Term: Up to 25 years

Interest rate: Set by lender, within SBA set limits

Columbus Growth Fund

Type: Direct loan

Use: Working capital and equipment

Owner investment: Typically 10 percent

Term: Maximum of five years, amortized up to 10 years

Interest rate: At market, based on the level of risk

MicroLoans

Type: Direct loan

Use: Equipment, working capital and inventory

Owner investment: Typically 10 percent

Term: Maximum of six years, no minimum term

Interest rate: Fixed, maximum 11.6 percent