During the past two decades, the World Wide Web has changed how we do business.
Companies have reinvented themselves. We've seen major changes in attitudes toward small business. In 1980, small business was considered to have little impact on the economy. During the past 20 years, however, these companies have become the driving force -- by creating the greatest percentage of jobs and millions in investments.
Government lending has also embraced this attitude change by creating new loan programs and revamping old systems. Twenty years ago, the SBA understood the role small business played in our economy and started making changes in how government lending was done.
You may remember government loan programs involving mountains of paperwork, red tape and a seemingly endless list of questions and requirements. Those days are gone.
Two decades ago, the SBA practiced direct lending to small business. In an effort to be more efficient, it has since turned this task over to banks and locally-run, nonprofit, certified development companies like Columbus Countywide Development Corp. Certified development companies help small business owners through each step in the process of government lending.
The intention was to shorten approval time, reduce paperwork and provide assistance in compiling business and financial information.
The SBA 504 loan focuses on fixed asset lending. It was designed to help the entrepreneur by requiring only a 10 percent down payment and offering a fixed interest rate, as well as a 10- or 20-year term. The local bank participates by financing 50 percent of the project. The SBA lends 40 percent and the owner invests 10 percent.
Closing costs can be financed into the loan package. Also, ownership in the company applying for the SBA 504 loan does not have to be identical to ownership in the company holding the asset being financed.
To reduce paperwork and delays, the Premier Certified Lender Program was created. This delegates more authority to your local certified development company to process, approve, close and service SBA 504 loans and can reduce turnaround to funding by almost a month.
The SBA 504 loan is not the only area of changes. It was determined that small businesses needed access to smaller loans, existing businesses needed less paperwork and women, minorities, veterans and rural-based businesses were experiencing difficulty in accessing loan funds.
The SBA created three programs to meet these needs:
- The SBA Low Doc program began with a maximum loan amount of $100,000 and has been increased to a maximum of $150,000. This financing can be used for real estate, machinery, equipment, inventory, working capital and some refinancing of debt.
The program requires the small business owner to work with his or her local SBA-approved bank, which submits nominal paperwork to the SBA for a guarantee on the loan. The bank limits its risk with SBA backing and is more likely to approve financing. Turnaround is usually less than a week.
- The SBA PreQualified Program began as the Women's Prequalification Program. Minority-, veteran- and women-owned businesses, rural-based businesses and businesses in exporting needed better access to funds. This program allows businesses to get a preguarantee from the SBA, with a maximum guarantee of 80 percent on loans of up to $250,000, by working with local approved certified development companies.
The entrepreneur can then approach the bank with the guarantee in hand. This decreases the bank's exposure and risk and increases the probability of approval.
- The MicroLoan Program is designed for financing businesses with greater risk levels. The maximum loan amount is $25,000, which can be used for inventory, equipment, working capital and machinery.
Government financing has enhanced the way we grow businesses in Central Ohio. The SBA is changing how we perceive government lending programs and making funds more accessible to the small business community. Andrea Brocklehurst is marketing director of Columbus Countywide Development Corp.