How to best employ SBA lending as a tool that will benefit your business

Tom Doherty, Managing Director, head of Business Banking, The PrivateBank

Tom Doherty, Managing Director, head of Business Banking, The PrivateBank

Small Business Administration (SBA) loan programs can fill needs that traditional bank lending does not.

“The key is going to a bank that is a preferred lender and has dedicated resources or an SBA specialist who really understands the eligibility requirements and programs,” says Tom Doherty, managing director and head of Business Banking at The PrivateBank.

Smart Business spoke with Doherty about how SBA loans can give your business access to vital capital.

How does SBA lending benefit businesses?

What the SBA offers fits into three categories:
•  Collateral shortfall — Banks have certain advance rates on the collateral they lend against. If there’s a collateral shortfall, the SBA can provide a guarantee to enhance the financing.
•  Lack of equity — Banks have down payment requirements, but the SBA will guarantee loans to allow for a smaller equity injection by the business owner.
•  Need for extended terms — If the borrower needs to extend the amortization term of a loan beyond traditional bank financing, the SBA will step in. If, for example, you need financing for a piece of equipment, the bank might offer five years on the loan term. The SBA has a program where you could go seven to 10 years on that deal.

What are some misunderstandings about SBA lending?

What the SBA considers a small business differs by industry, and although there is no minimum, it goes larger than most would think. Visit to find qualifying cutoffs. The standards are expressed in either millions of dollars or number of employees. In some instances, a company can still qualify with 1,500 employees.

Then, there’s a perception that SBA is a lender of last resort. However, the SBA, like a bank, looks at cash flow. Recently, businesses have been returning to profit on their financial statements, so more are eligible for SBA programs.

Many borrowers also think SBA lending is a tedious process with a lot of paperwork. In part, this misconception may come when borrowers deal with an inexperienced lender. But the SBA has listened, too, and streamlined its processes, such as the small loan advantage program, which lends up to $350,000 on a very quick turnaround.

Are certain SBA loans not as well known?

The SBA’s 7(a) loan is the general flagship program with which most banks and borrowers are familiar. The SBA 504 loan program is a little lesser known. It applies when, for example, you want to buy a piece of real estate and put 10 percent down. The bank then takes 50 percent of the loan, and a local certified development company sells the remaining 40 percent as a debenture on the secondary market. Bottom line, it can give the borrower a 20-year fixed rate deal that’s not available conventionally.

What should a borrower know about the SBA loan process?

The SBA website,, is a great place to find background on the different programs. But the best option is to go to a bank that is a preferred lender with a dedicated SBA specialist. As part of the application, there are SBA requirements to be met and documents to be completed. Many times, lenders don’t do enough of these on a regular basis to have expertise in putting the package together.

Once the application is complete, the loan goes through the normal course of underwriting because the SBA, in essence, has delegated the approval authority to that preferred lender.

What would allow more SBA lending?

Under 504, as part of the stimulus package, the government allowed banks to refinance existing real estate debt where businesses could improve their terms or lock in a longer fixed rate. However, this ended in September 2012 and the level of 504 lending has dropped significantly.

The new congressional budget proposal has suggested this refinancing provision be extended out to September 2014. This provision is something small business owners should push for and keep an eye on.

Tom Doherty is Managing Director and head of Business Banking at The PrivateBank. Reach him at (847) 920-3180 or [email protected]

Website: Learn more about financing opportunities for small businesses through our small business banking page at

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How SBA Export Working Capital loans help small businesses

Romona Davis, vice president, SBA specialist, FirstMerit Bank

Romona Davis, vice president, SBA specialist, FirstMerit Bank

Arthur G. Rice, vice president, manager, International Operations and Product Management, FirstMerit Bank

Arthur G. Rice, vice president, manager, International Operations and Product Management, FirstMerit Bank

Banks typically exclude export accounts receivable (A/R) and work in progress (WIP) from a company’s borrowing base, which can be challenging for a company with global sales that are rapidly growing or when a single large export order is received.

As a result, Export Working Capital loans were created by the U.S. Small Business Administration (SBA) to allow U.S.-based businesses to have access to a low-cost source of funds that support their international sales and manufacturing cycles.

“Through programs like this, the SBA — a taxpayer-funded federal agency — is putting our tax dollars back into the U.S. economy to promote retaining current jobs or even creating new jobs associated with international sales that otherwise could be won by foreign competitors,” says Arthur G. Rice, vice president and manager, International Operations and Product Management, FirstMerit Bank.

Smart Business spoke with Rice, as well as Romona Davis, vice president and SBA specialist, FirstMerit Bank about how these transactions work to enable small businesses to obtain funds for international sales and operations.

What are some benefits and how do these loans differ from others?

These loans are different from what you might call ‘standard’ operating capital line facilities in that the benefits are focused on international business. Under standard operating line facilities, the borrower is not permitted to include any A/R, WIP or inventory tied to foreign sales into its borrowing base calculations.

This restriction can severely limit the borrower’s ability to have access to sufficient working capital to allow the small business the ability to react quickly to significant market opportunities. These foreign opportunities can be encountered through trade shows, Web sales and foreign distributors. The ability to include foreign A/R, WIP or inventory may allow the small business to jump from 75 to 90 percent advance funding rates.

Who can apply for these loans? 

Any for-profit organization whether organized as a corporation, sole proprietor or partnership that meets size standards as a small business can be eligible for the SBA. This program supports both manufacturing and service-oriented organizations and has many applications.

SBA Export Working Capital loans are granted for up to $5 million to fund export transactions from purchase orders to collections. There’s a low guaranty fee and quick processing time. The SBA also has two additional export loan programs — Export Express Loan Program and the International Trade Loan Program.

In addition to supporting ongoing exports, what else can Export Working Capital loans be used for?

Export Working Capital loans not only support your ongoing export business, but also can be used for:

  • Issuance of standby letters of credit to support bid bond requests, cash down payments and warranty periods.
  • Purchase of raw materials, components, participation at foreign trade shows and general export marketing activities.
  • Collection of foreign A/R.

Are there any exclusions or conditions business owners need to keep in mind?

The SBA Export Working Capital Program is quite flexible and able to be utilized for most international sales opportunities. However, products to be exported must be more than 50 percent U.S. content and shipped from the U. S. There also are some specific restrictions based on federal regulations that your lender can make you aware of to help you stay in compliance.

What do you need to get started?

Along with the application and fee, you’ll need at least one year’s worth of financial statements and a brief history of your company, including senior management biographies and pro forma business plans. You also need a clear description of your proposed use of the working capital proceeds.

All opinions expressed herein are those of the authors/sources and do not necessarily reflect the views of FirstMerit Corporation.

Arthur G. Rice is a vice president, manager, International Operations and Product Management, at FirstMerit Bank. Reach him at (330) 384-7178 or [email protected]

Romona Davis is a vice president, SBA specialist, at FirstMerit Bank. Reach her at (330) 996-6242 or [email protected]


Learn more about FirstMerit’s International Banking export programs.


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How to take advantage of U.S. Small Business Administration loans

Edward L. Wood, CTP, Regional Vice President of Commercial Lending, National Bank & Trust

If you run a small business that has had difficulties obtaining a loan, there is some good news. Preferred lenders can help businesses navigate through the U.S. Small Business Administration (SBA) loan programs to obtain financing needed for growth and expansion. The SBA loan process can be confusing, and small businesses may experience unknown challenges when applying, such as a collateral shortfall or not enough cash down payment to put into the transaction. However, preferred lenders, like community banks, can help small businesses with this process.

“We’re likely experiencing the lowest interest rates in history,” says Edward L. Wood, CTP, regional vice president of commercial lending for National Bank & Trust. “The ability to lock those rates in for a longer period makes today a compelling time to get an SBA loan.”

Smart Business spoke with Wood about SBA loans and how obtaining one could benefit your business.

What types of businesses can benefit from an SBA loan?

Typically, the SBA’s goal is assist small businesses with their growth and lending needs, rather than large corporations that do more than $100 million annually in sales. However, there are a variety of SBA rules that companies must abide by to qualify for an SBA loan. It is always recommended that the borrower find an experienced SBA lender who participates in the Preferred Lender Program (PLP) and can help you navigate the SBA requirements.

How do SBA loans differ from other loan products?

There are many advantages to SBA loans, including a lower down payment, sometimes as little as 10 percent, which is typical of two SBA programs known as 504 loans and 7A loans. You also can get extended payment terms with these loans. For example, lenders with working capital loans prefer to keep amortizations between 36 to 48 months. Under the SBA 7A guaranteed loan program, many lenders allow longer amortization periods, usually up to seven years, which provides an even greater benefit to the borrower.

Also with a SBA 7A loan, the bank is lending all of the funds for the project and the SBA provides the lender with a guarantee, generally around 75 percent of the total loan amount. These loans offer working capital to fund growth, accounts receivable and inventory.

The SBA 504 loan is geared toward equipment financing and/or owner-occupied real estate. With this type of transaction, the borrower has two loans — one with the SBA who finances 40 percent and the second with the lender who finances 50 percent. The borrower is only required to provide 10 percent equity in the project. Under the 504 program the lender maintains a first mortgage on the collateral while the SBA takes a second position. Additionally, with the SBA 504 loan, the borrower should be aware there are prepayment penalties within the first 10 years.

The effective rate for the SBA portion of the 504 loan in August 2012 was a fixed rate of 4.45 percent. The lender portion is usually handled with a five-year adjustable rate.

What is the process to obtain an SBA loan?

The process starts when a borrower contacts his or her preferred lender. The lender will assist him or her through every step of the process. The lender drives SBA 7A loans and capital lines of credit from start to finish and submits the transaction to the SBA for approval. For SBA 504 loans, the lender will also work with a third-party non-profit entity that will underwrite and submit the transaction to the SBA for approval.

To apply, simply provide the same information you would for any other type of loan. Lenders are looking for the last three years of business and personal tax returns of the guarantors and accountant-prepared financial statements covering the three previous years. A personal financial statement from each year and an aging of the business accounts receivable and payables are also needed.

Why is now a good time to apply for an SBA loan?

The uncertainty in the interest rate market makes today a compelling time to apply. Because of this uncertainty, the SBA loan becomes an incredibly viable product that could allow you to fix part of your total debt service for up to 20 years. Getting longer amortizations on working capital loans are compelling because it allows the borrower to stretch payments out over a longer period of time, thus reducing your debt service requirements.

There is also uncertainty in the market, not only in terms of where interest rates will head but also where inflation will be and the debt level the U.S. has taken on. While interest rates will rise no one can be sure when that will happen, so it is to a company’s benefit to act now.

How can working with a community bank to obtain an SBA loan be beneficial?

A community bank has the ability to better execute an approval. There are fewer people at the top involved in the approval process than at a larger bank.

Depending on the type of transaction, it could take three weeks to get an approval once the lender receives all necessary information. Community banks are well suited to obtain all the necessary information upfront, which can help avoid delays.

Edward L. Wood, CTP, is regional vice president of commercial lending and the HCDC (Hamilton County Development Corporation) 2011 lender of the year. Reach him at (800) 837-3011 or [email protected]

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How to expand your business through an SBA loan

Anna Chung, Senior Vice President and SBA Manager, Wilshire State Bank

More than 90 percent of American businesses are classified as small, but don’t under-estimate their power. Collectively, these enterprises employ more than half of all private sector workers, generate more than half our nonfarm gross domestic product and have created 64 percent of our economy’s net new jobs in the last 15 years.

In fact, the success of small business owners is so integral to the health of our overall economy that back in 1953 Congress created the U.S. Small Business Association (SBA) to serve as their personal advocate.

“The SBA offers owners a bounty of resources to help their small business grow,” says Anna Chung, senior vice president and SBA manager at Wilshire State Bank. “They not only help owners find funding, they’ll even help them write a business plan and navigate the lending process.”

Smart Business spoke with Chung about the opportunities to grow your small business through an SBA loan.

When should small business owners consider an SBA loan?

The SBA offers a number of financing programs to help small businesses grow. Established business owners usually apply for a 7(a) or a 504 loan. A 7(a) loan offers financial help for businesses in many different areas while a 504 loan provides long-term, fixed-rate financing to purchase major fixed assets for expansion or modernization. Although 504 loans can’t be used for operating capital, many owners use the funds to purchase a large building or second location, which helps free up money for expansion by allowing them to lease out the extra space. If you sign a large contract that requires purchasing additional inventory or equipment, call your banker right away so he or she can review your credit history and contract to see if you can finance the purchases with an SBA loan.

Do SBA loans offer better terms than other commercial loans?

An SBA loan is a standard commercial instrument that offers some very favorable terms. For example, the loans feature higher loan-to-value ratios, longer repayment periods and no balloon payments, yet still allow owners to partner with their local banker. Borrowers can purchase property by putting 10 percent down and pay back the loan over 25 years, which is better than most commercial mortgages. An SBA loan is ideal for growth as long as small business owners anticipate their future needs. Because if you wait too long to apply you could end up running out of cash, and owners need to show adequate working capital to qualify.

How does the SBA support banks in granting loans to small businesses?

SBA loans were designed to help small business owners who couldn’t qualify for a standard commercial loan, either because they have a smaller net worth or less working capital. So if an owner has access to other financing at reasonable terms he may not qualify for an SBA loan. The SBA guarantees up to 75 percent of the loan amount, which encourages a banker to lend, but the banker is responsible for meeting the SBA’s strict underwriting guidelines that are designed to mitigate risk.

How does the SBA qualification process differ from other commercial loans?

Owners still need to furnish a business plan, resume and copies of tax returns and financial statements, but these guidelines differ from standard commercial loans.

  • Collateral. The loan must be collateralized if the borrower has collateral to offer, because the SBA requires bankers to mitigate risk whenever possible.
  • Ownership. If the borrower owns several companies or controls several affiliates, lenders must review tax returns for those enterprises in addition to the owner’s primary concern.
  • Down payment. Lenders must determine the source of a borrower’s down payment, even if the funds have been deposited into an escrow account. So owners need to provide documentation tracing the origin of a down payment.
  • Tax returns. Owners must supply three years’ tax returns instead of two to qualify for an SBA loan.
  • Criminal records and green cards. If a borrower has an arrest or conviction record the loan must be submitted to the SBA for approval. And an applicant’s green card must be validated by the INS before his or her loan is approved.
  • Processing time. Most SBA loans are underwritten and approved in 30 to 45 days. But if the owner plans to purchase property, which requires an appraisal or an environmental impact report, the underwriting process may take 60 to 90 days.

Does the SBA offer other support to small business owners?

The SBA provides Small Business Development Centers (SBDCs) which offer owners free and confidential assistance with financial, marketing, production, organization, engineering and technical problems and feasibility studies. Many centers partner with local universities and engage local CPAs, retired executives and consultants to advise small business owners. In fact, the staff can even recommend a banker and help an owner develop a business plan or create a sales forecast to qualify for an SBA loan. The SBA also provides mentorships and free counseling services through a nonprofit organization called SCORE. SCORE has more than 389 chapters and 11,000 volunteers serving urban, suburban and rural areas. Keep in mind that the SBA also offers specialized assistance to women and veterans, so why not unleash the power of your small business advocate by visiting a local office.

Anna Chung is the senior vice president and SBA manager at Wilshire State Bank. Reach her at [email protected] or (213) 637-9742.

How to take advantage of an SBA loan to grow your business

Romona J. Davis, Vice President of SBA Lending, FirstMerit Bank

Finding the necessary financing to thrive — or just survive — can be difficult for small businesses. But there are resources available to help startups and entrepreneurs compete in this market.

“SBA loans are designed for borrowers that might not qualify for conventional financing due to a number of different reasons,” says Romona J. Davis, Vice President of SBA lending with FirstMerit Bank.

Smart Business spoke with Davis about how to determine whether an SBA loan could help your business, and how to get started with the process.

What are the differences between SBA loans and conventional loans?

The main difference is that SBA loans are backed by the United States government, which provides a guarantee to the bank. SBA loans are for borrowers that might not qualify for conventional financing due to a variety of reasons, such as:

  • Insufficient collateral
  • A startup business or one that’s only been in existence for a short period of time
  • The company is looking for a longer term on its owner-occupied commercial real estate purchase
  • The borrower is in a ‘high-risk’ industry
  • The borrower only wants to inject a minimum down payment
  • Impending or current ownership changes with the business
  • Inconsistent financial performance over the past few years

How does a lender determine if an industry is high risk?

It varies by bank. Most banks consider the restaurant industry as one that has a lot of risk associated with it. Also, when the economy changed and building contractors were negatively impacted, they became high risk.

However, being part of a high-risk industry doesn’t mean a conventional loan is impossible.

What can SBA loans be used for?

SBA loans can be used to:

  • Purchase owner-occupied commercial real estate
  • Buy out a business partner
  • Buy a business
  • Purchase machinery and equipment
  • Buy a franchise
  • Construct a building (the business must occupy 60 percent of the space)
  • Cover working capital needs
  • Refinance existing business debt

What types of businesses are eligible for SBA loans?

To qualify for SBA financing, the entity must be designated ‘for-profit.’ In addition, the business must meet certain SBA size standards, demonstrate good character, have a positive payment history on previous federal debt (no prior defaults on federal debt), possess U.S. or Legal Permanent Resident status, and show reasonable expectation of repayment.

What are the required size standards?

The SBA has developed size standards for different types of industries. Companies must meet either a maximum number of employees or maximum revenue amount to qualify as a small business. For example, in the manufacturing industry a small business must have fewer than 500 employees to be considered for an SBA loan. The bank will check to make sure the company is within standards. Some industries have a revenue amount; some have a required number of employees. Rarely do we find a company that doesn’t fit, but occasionally a company is too big to be considered a small business. Also, the SBA loan limit is $5 million per borrower.

How is ‘good character’ determined?

First, the SBA looks at the company’s credit, tax liens and any prior delinquencies with the government.

Also, the SBA always wants to know if a borrower has any criminal background, has been under indictment, is currently on probation, has ever been on probation, or has ever been charged with or arrested for any criminal offense, other than a minor motor vehicle violation.

The two ways to assess character, from the SBA’s perspective, are through personal credit and personal background.

Why might a business opt for an SBA loan instead of a conventional loan?

Businesses might opt for an SBA loan versus a conventional loan if they:

  • Want a longer term on their owner-occupied commercial real estate or equipment loan
  • Want a straight term and amortization versus a balloon note
  • Prefer a lower down payment on their transaction
  • Have a collateral shortfall
  • Want to consolidate business debt into one loan that could offer a longer repayment period
  • Want to buy out their business partner with a minimum equity injection
  • Want to purchase a business but there’s insufficient collateral
  • Desire cash flow savings due to a longer term and amortization

How can businesses get started with the loan process?

If a business is interested in an SBA loan, the first step is to contact a bank that participates in the SBA Program. The banker will need to make certain that the company is eligible as indicated above. Assuming the business is eligible, the borrower would need to provide a financing package to the bank for SBA consideration.

Disclosure: All opinions expressed in this article are that of the authors or sources and do not necessarily reflect the views of FirstMerit Bank or FirstMerit Corp.

Romona J. Davis is Vice President of SBA lending for FirstMerit Bank. Reach her at (330) 996-6242 or [email protected]