The Small Business Administration’s (SBA) lending program is a major part of U.S. business growth, and these loans can often be substituted for traditional commercial loans with some benefits to the borrower.
“With SBA loans, a business owner can increase his or her cash flow and sometimes get approved for higher loan amounts than traditional commercial loans,” says Steven Valiquette, second vice president and commercial loan officer at First State Bank.
Smart Business spoke with Valiquette about how SBA lending works and what business owners need to know.
What are the advantages of SBA loans versus traditional commercial lending?
The SBA allows for longer amortizations than most typical bank financing, so business owners can utilize extended terms. For instance, real estate can be amortized over 25 years with SBA financing, but the bank may only offer 20 years with traditional bank financing. As another example, equipment can be amortized over seven to 10 years with SBA financing, while traditional bank financing may be limited to five years.
Another advantage to SBA loans is lower out-of-pocket expenses when compared to traditional commercial loans. The SBA also allows the borrower to roll fees into their loan balance, which isn’t normally the case.
Lower collateral requirements are another benefit. The SBA has higher loan-to-value ratios compared to traditional commercial loans.
What type of loans will the SBA finance?
The SBA can generally finance the same types of business loans that a bank can, with the major exception of non-owner occupied real estate. Term debt such as real estate or equipment purchases are typically financed with SBA 7(a) or 504 loans, and lines of credit can be financed with a SBA Express loan or SBA CapLines.
How can a borrower increase its chance of being approved for a SBA loan?
First, talk to several financial institutions. Find financial institutions in your market that make loans to businesses similar to yours and work with bankers who understand your industry. Other best practices are:
• Develop a good business plan. Be ready to explain why customers are going to want to do business with you and how your business is going to compete in your market.
• Take the time to understand the risks associated with your business and provide mitigating factors.
• Provide realistic projections with best case, worst case, most likely case and break-even scenarios. Having detailed projections can help mitigate some of the risk associated with the loan request.
• Develop alternative ways the loan can be repaid if business is slower than projected or, in worst-case scenario, fails.
• Maintain a good personal credit history. Many bankers feel if your personal credit isn’t handled properly, there’s a good chance your commercial loan payments will not be either.
What else do business owners need to consider?
Take your time and develop a well thought out business proposal. For many small businesses, the bank is not only looking at the financial statements or the business projections, but also the person or people behind the company.
Always provide the information your banker is asking for because any information he or she is requiring is a tool used to evaluate your request.
It’s also important to put focus on management’s experience. If management can demonstrate a strong knowledge of the industry and the ability to handle adversity, this may help ease some of the risk of the loan request.
Finally, try to anticipate your future financing needs. Commercial or SBA loans take some time to close, so you need to plan for it. Remember, it’s easier and less stressful to seek financing prior to the actual need.
Steven Valiquette is second vice president, commercial loan officer, at First State Bank. Reach him at (586) 445-1058 or firstname.lastname@example.org.
Website: For more about SBA loans, visit www.thefsb.com/sba.
Family Business Award of Excellence
Kenneth L. Robison
Kenneth L. Robison has had a strong work ethic going back to the time when he was a young boy foregoing baseball and childhood games with his friends to learn about business. Through his family’s business, he learned how to weld and operate machinery and how to put together structural steel and electrical assemblies.
After getting his MBA from the University of Texas, he returned to Crest Industries and gained first-hand experience in many of the jobs that make up the organization. This experience served him well when he became CEO since it gave him a wealth of knowledge and insight into how people do their jobs throughout the company. Robison brings that same curious enthusiasm to his work these days, and it becomes contagious to those around him, strengthening the culture and improving the level of service to customers.
The relationships that Robison builds become critical when the company needs to take bold steps to keep growing. Robison doesn’t take unnecessary risks and the ones he does take, he and his team do as much research as they can to ensure success and prevent the downside from occurring.
His goal, whether it’s looking at tomorrow or his 2020 vision plan, is to be on top of things and armed with the data he needs to make the best decisions for his company. He thrives on being the leader and helping his company take the next step, but he also takes a lot of satisfaction from seeing the people on his team experience their own victories. He doesn’t see leadership development as a cost.
Instead, he sees it as an investment in the company’s most valuable asset, its people. The support of others stretches beyond the walls of his company. It includes a committed focus to working with charitable causes as well as helping the future leaders of Crest Industries to get what they need to fulfill their potential.
How to reach: Crest Industries, www.crestoperations.com
The Affordable Care Act (ACA) contains a total of 91 provisions, bringing change to the insurance market and impacting the type of coverage employers offer their employees.
“Many of the upcoming ACA provisions depend on the size of your employee population,” says Marty Hauser, CEO of SummaCare, Inc. “Employers need to understand these provisions, as they will likely determine what kind of coverage you offer your employees.”
Smart Business spoke to Hauser about how some key provisions impact employers.
What are some provisions impacting all employer groups?
Although some provisions of the ACA are based on the number of employees an employer has, others apply to all employer groups, regardless of size. These provisions include, but are not limited to, guaranteed issue and renewal of health insurance plans, no pre-existing condition exclusion, employer notification of the health insurance marketplaces and an increase to the maximum allowable reward for health-contingent wellness programs.
Beginning Oct. 1, 2013, employers will be required to notify employees of the availability of the health insurance marketplace, formerly known as exchanges. The marketplace is an online portal that will allow consumers and employers to find and compare different health insurance options. Employers must provide employees, regardless of plan enrollment status or part-time or full-time employment status, a written notice informing them of their coverage options. The Department of Labor (DOL) has created three different model notices for employers to communicate this information to employees, and these are available on the DOL’s website.
Another provision impacting all employer groups is the increase to the maximum allowable reward for health-contingent wellness programs from 20 to 30 percent of the cost of coverage. The program must meet five regulatory requirements to qualify as a health-contingent wellness program.
What are some provisions impacting small group employers?
Beginning in 2014, the marketplace will operate a Small Business Health Options Program, or SHOP, that offers choices when it comes to purchasing health insurance for small group employers — with up to 50 employees in 2014 and increasing to 100 employees in 2016 — and their employees.
Through the SHOP, employers will eventually be able to offer employees a variety of Qualified Health Plans (QHPs) from different carriers, and employees can choose the plan that fits their needs and their budget. In 2014, however, small group employers will be limited to offering only one QHP to their employees, as the provision allowing choices between multiple carriers has been delayed until 2015.
In addition to the availability of the SHOP, small group employers with fewer than 25 full-time employees, or a combination of full-time and part-time employees, may be eligible for a health insurance tax credit in 2014 if they offer insurance through the SHOP and meet other criteria, such as the average wages of employees must be less than $50,000, and the employer must pay at least half of the insurance premium.
What are some provisions impacting large group employers?
Effective Jan. 1, 2014, employers that employ an average of at least 51 full-time employees are required to offer employees and their dependents an employer-sponsored plan or the employer pays a penalty, often referred to as ‘pay or play.’
This provision has specific criteria meant to not only define and determine the number of employees in the group, but also to confirm the employer is providing affordable, minimum essential coverage. Part-time employees count toward the calculation of full-time equivalent employees, and there is no penalty if affordable coverage is offered.
If an employer doesn’t provide adequate health insurance to its employees, the employer will be required to pay a penalty if its employees receive premium tax credits to buy their own insurance. The penalties will be $2,000 per full-time employee beyond the employer’s first 30 workers. Penalties paid by the employer will be used to offset the cost of the tax credits.
Marty Hauser is CEO at SummaCare, Inc. Reach him at email@example.com.
Insights Health Care is brought to you by SummaCare, Inc.
For 27 years, Ernst & Young has celebrated the entrepreneurial spirit of men and women who have followed their dreams to pursue innovation and entrepreneurial excellence, changing the lives of countless others by building their businesses and giving back to their communities.
The passion they’ve poured into their businesses and the triumphs they’ve achieved stand as a testament to the role they play as visionaries, leaders and innovators. Ernst & Young founded the Entrepreneur Of The Year program to recognize these dynamic leaders and to build an influential and innovative community of entrepreneurs.
We have gathered here in Greater Los Angeles and in 25 other cities across the U.S. to applaud these entrepreneurs for taking the road less traveled, and welcome the regional award recipients into our entrepreneurial Hall of Fame.
Congratulations on your achievements! Ernst & Young looks forward to helping you find new and innovative ways to continue to grow your business and accomplish your goals.
Brian Ring is a partner and program director for Entrepreneur Of The Year, Greater Los Angeles.
April Spencer is a partner and program director for Entrepreneur Of The Year, Greater Los Angeles.
Family Business Award of Excellence
Jim Armstrong, Clearstone Venture Partners
Chuck Davis, Technology Crossover Ventures *
Mark Hardy, Aurora Capital Group
Jeri Harman, Avante Mezzanine Partners
Carlton Jenkins, The Yucaipa Companies
Brad Jones, Redpoint Ventures *
Eric Kutsenda, Seidler Equity Partners
Barry C. Levin, Snak King Corporation *
J. Christopher Lewis, Riordan, Lewis & Haden Equity Partners
Dr. Linda Livingstone, Graziadio School of Business & Management, Pepperdine University
Mark Stagen, Emerald Health Services **
Kamran Pourzanjani, Bestcovery.com **
Julie Schoenfeld, Perfect Market, Inc.
* Prior award recipient
** Prior award recipient and national finalist
Family Business Award of Excellence
When Helene An arrived in San Francisco in 1975 she had little more than memories to cling to. The fall of Saigon in her native Vietnam had forced An and her daughters to flee the country and come to the U.S.
Despite the hardships, they brought with them a strong spirit of determination to get back on their feet and find success. They would get their chance at an Italian deli that Helene’s mother-in-law Diana had purchased four years earlier while vacationing in San Francisco.
Most of the patrons to the deli had never experienced Vietnamese food, so Helene kept the Italian menu and slowly began to introduce patrons to Vietnamese cuisine. She would offer her favorite dishes for free, urging her patrons to “try this delicious food from my home country.”
Seeing how her customers loved pasta, she created her own version of Vietnamese spaghetti with garlic. It became one of her trademarks which she named An’s Famous Garlic Noodles.
Eventually, the deli became Thanh Long and is known as being the first Vietnamese restaurant in San Francisco. Today, the An family owns and operates five restaurants and a catering division. Each location offers a unique dining experience that complements the restaurant’s cuisine.
In 2007, the An family was inducted into the Vietnamese-American Wing of the Smithsonian Institute for being one of the first to bring Vietnamese cuisine to mainstream America.
While Helene serves as executive chef at House of An, her five daughters are managing partners. Catherine, Elizabeth, Hannah, Monique and Jacqueline each oversee part of the company’s operations. Catherine focuses specifically on the catering operations and is also the brainchild behind the An’s newest eco-chic concept, Tiato Kitchen Bar Garden + Venue.
As the great-grandchildren of Diana An now begin to learn the business, the future seems very bright for the House of An, and the fourth generation that will one day lead the way.
How to reach: House of An, www.houseofan.com
Demian Sellfors has always been ahead of his time. That aspect led the self-taught IT professional and graphic design artist to branch off from an established special effects studio and begin his own web-hosting company in the humble confines of his apartment.
He focused on offering the best in both quality and customer service, and the public took notice. Soon, Sellfors’ company was acquired by one of his customers, Media Temple, which recognized his ability to lead and appointed him CEO 12 years ago. The company grew as Sellfors took a hands-on approach working directly with employees to coach, mentor and nurture the skills within each.
If you ask Sellfors his greatest contribution to the company’s success, he would dismiss his role as an innovator and instead point to his ability to inspire greatness in others.
One of the challenges he faced was determining how to position his company among its competitors, many of which were caught in a downward spiraling price war. It prompted Sellfors to follow a new strategy — Why not offer the best quality for the highest price?
Media Temple maintained its product positioning with great success, boasting the industry’s lowest churn rate of 1.3 percent compared to the industry average of 3 to 7 percent.
In the workplace, Sellfors is all about success, but he wants the pursuit of that success to be filled with fun and personal fulfillment. There is yoga and CrossFit at lunch and a catered meal every other Friday.
Children and pets are welcome at the office, and there’s even a nap area employees can use to re-energize.
Sellfors wants his employees to be at the top of their game, and if they need to take a little time off to recharge, they can do it. Each employee gets a paid, one-month sabbatical every three years. It all adds up to the last of the company’s five core values, which is simply, “Enjoy the Journey.”
How to reach: Media Temple, www.mediatemple.net
Dinesh Ravishanker and a team of graduates from the University of California, Irvine, did not have a lot of money in 2004 when they set out to launch what has become a game-changing business in CallFire.
But they had a passion for innovation and the energy to build a company that would transform the way the business world communicates. The result is a company that has grown its customer base to more than 100,000, with 15,000 new users coming aboard in 2012 — without a dime of venture capital.
CallFire simplifies telephony, making sophisticated and expensive carrier-class telecom capabilities available through affordable and easy-to-use graphical user interface and application programming interface platforms. Any business, from start-up to large enterprise, can reach its customers on any device using text message or voice.
Ravishanker, CallFire’s co-founder and CEO, is committed to building a company that will have staying power and be able to evolve as the fast-paced world of technology moves forward. In order to do that, he knows he’ll need employees who have a diverse skill set and a willingness to tackle new challenges as they come up.
CallFire has a number of health initiatives in place including nutritious food alternatives on-site and the promotion of athletic activities. Ravishanker also encourages employees to continue learning and attend seminars to gain new skills that can help them be more productive in their work.
He wants to build a brand that people associate with a strong work ethic and a spirit of customer service. But Ravishanker also wants the brand to stand for love of community and compassion for those who haven’t experienced as much success in life.
During a vacation, Ravishanker traveled to Nicaragua where he worked with a group of speech pathologists to help children overcome their speech problems. He also helped renovate two orphanages. This spirit to help is what he encourages in his people as they seek their own path to give back.
How to reach: CallFire, www.callfire.com
Sam Naficy is the president and CEO of DTT, a technology company in the video surveillance industry. Although DTT has emerged as a dominant player in its industry and continues to deliver cutting-edge services and technology through Naficy’s leadership, it had modest beginnings, often facing capital constraints and tough competition.
With DDT’s early financial struggles, Naficy decided to change DTT’s business model from a fixed-fee service to a monthly subscription service to adjust to the competitive market and offer his clients newer technology. He also made necessary infrastructural investments to serve his clients better.
Although business was booming, he found himself unable to keep up with demand. It was not until he was able to thoroughly convince his father-in-law about his vision for DTT the he was able to obtain the needed funds to continue DTT’s operations.
Through the years there have been many formidable competitors that have tried to enter DTT’s market, but all have been unsuccessful in penetrating the company’s dominance. Much of this can be attributed to Naficy’s focus on his customer’s needs instead of trying to dabble in various aspects of the technology world.
Essentially, he grew his company vertically rather than horizontally — providing a litany of services for specific customer needs. The company’s “secret sauce” is its product’s ability to extract sales detail from point-of-sales systems and mirror it with a video image.
Recently, DTT also rolled out a new product called the SCREAM service, a feedback app that operates in the cloud so the owner/operator receives customer feedback immediately by text and can respond immediately to any issues.
During the past 14 years, DTT has supported more than 27,000 customer locations for renowned brands such as McDonald’s, Subway, Burger King, the Peninsula Hotel and has just developed a new relationship with Arby’s. With 350 employees residing in various departments, Naficy has grown the equity value of the company immensely.
How to reach: DTT, www.dttusa.com
Walter Driver, the CEO of Scopely, Inc., graduated from college with a degree in creative writing, a skill he says was necessary to envision a company as distinctive as Scopely, a developer and distributor of mobile apps to enable third-party game developers to build, retain and monetize an engaged audience.
Driver saw an opportunity in the technology space since most gaming companies in Silicon Valley focused on the code and programming behind the applications they created. But Driver wanted to make gaming an emotional experience. With the vision of fusing technology and traditional entertainment, Scopely was born.
The technology industry moves extremely quickly, and Driver has proved his ability to adapt in an ever-changing environment. For example, when Scopely was first founded, most games were developed on the Facebook platform. However, Driver quickly identified the maturation of the technological ecosystem and shifted focus to the iOS platform for mobile devices.
At the highest level, Scopely is building a network of socially connected games that are supported by its proprietary platform. The company allows independent game developers to compete head-to-head against the largest developers in the world in the battle for reach, revenue and users.
Scopely’s technical infrastructure allows developers to develop games efficiently. Its social mechanics are designed to create experiences that retain users and drive them to continually engage.
What distinguishes Scopely further is that unlike traditional publishers or social platforms, Scopely takes a hands-on approach to working with partners. By partnering with elite developers and dedicating resources to each game title it publishes, Scopely ensures that it only produces quality products.
Driver’s strategy has paid off. Experts expect 1 billion smartphone users by the end of 2013 and more than 2 billion by the end of 2015. Tablet sales are growing even faster. The growth in the mobile device industry is organic, and Scopely has identified a way to profit from the wave sweeping across the globe.
How to reach: Scopely, Inc., www.scopely.com