Businesses have assorted funding options available

by Ashleigh Behlmann

SBJ Contributing Writer

sbj@sbj.net

For those seeking to acquire a start-up loan for a new business or an expansion loan for an existing business, the process may seem daunting. However, the business community may take advantage of a number of programs to assist them in securing loans for business ventures.

The U.S. Small Business Administration has recently reinstated its 7a Loan Guaranty Program. According to the SBA, the loan may be used for any legitimate business purpose, including renovating facilities, purchasing new equipment, financing seasonal lines of credit and purchasing land or buildings. The loan is applicable to most businesses excepting those engaged in speculation or investment. Businesses must fall within SBA's criteria for a small business in order to receive the loan.

SBA loans, particularly type 7a, are beneficial to those who may be considered too high risk to be approved solely by a bank. For instance, an applicant with too little collateral but with a well-thought-out business plan may not be able to receive a loan from a bank. However, the bank may approve a loan subject to an SBA guaranty.

SBA's role is to reduce the risk to the lender by guaranteeing as much as 85 percent of a small-business loan. "Our purpose in life is to induce banks to make loans they typically couldn't make," said M. Brent Jones, economic development specialist at Springfield's SBA branch office.

H. Michael Mattson, senior vice president of commercial loans at Liberty Bank, said, "The advantage of working with the SBA for a small business is that we have ability to provide longer terms than we might normally, perhaps a smaller down payment or personal injection, plus they have the ability to access (Service Corps of Retired Executives) and other programs."

Seeking assistance from the Small Business Development Center at Southwest Missouri State University or professionals such as accountants or attorneys also is an important step to take before going to a bank seeking a loan, Mattson said.

Jo Hicks, senior vice president of Commerce Bank, agreed.

"If you get your basic legal and accounting framework established up front, it will save you a lot of headaches," said Hicks. She also advises new businesses especially to provide a copious description of what the business hopes to accomplish in a business plan. "We can't be experts on every kind of business by any stretch of the imagination. The more they can give us about the mission statement of their business and how they will differentiate themselves from their competition all of that narrative will help us understand the numbers."

The SBA backs both major and minor funding for businesses, but other local resources are available for those seeking to apply for "gap funding" for their business.

The Springfield Finance and Development Corporation opened in 1997. The multibank community development corporation was founded to assist in the redevelopment of Springfield's center city area. "This came out of some recognition as we were planning for center city that one of the barriers was capital. We had a lot of people that were coming in and trying to redevelop, but because of financing gaps and some of the complexities in redeveloping older buildings, some deals that would have been good deals weren't getting done," said Brian Fogle, SFDC treasurer and Great Southern Bank's vice president of community development.

Fogle said that since its inception the organization has grown from nine to 12 shareholders and has made 22 loans totaling $904,500. SFDC's maximum loan is $75,000.

"We've done both new businesses and businesses who want to expand or move to center city and rehab a building. Our loans are not for residential, only small businesses. We've done restaurants, nightclubs, hair salons, just a variety of businesses," Fogle said. "As any lender we look at the ability to repay the loan, experience, projections. We are not a program that if you've had prior credit problems that are unexplained we're going to be able to overcome that."

Fogle said that one of the advantages of the SFDC program is that while it is owned by commercial banks, it is not a commercial bank.

"So we can do some things that a bank can't do relax collateral, consider different amounts for payments. We can be a lot more flexible." SFDC is also partnered with the city of Springfield and Urban Districts Alliance to assist in facilitating loans.

"We are very fortunate to have two partners who help us make this happen," Fogle said. "The city of Springfield serves as an administrative agent; they underwrite loans and take payments. Our other partner on a contractual basis is the Urban Districts Alliance, they serve as a marketing arm and administrate board meetings." He added that SFDC is organized to be able to invest venture capital if a suitable opportunity rises.

The city of Springfield itself has gap funding loan programs available: The Small Business Development program and the Faade Improvement Loan Program. The Small Business Development Program is primarily tied to real estate.

"We secure the property with a deed of trust, so someone can obtain a city loan to either buy or renovate real estate," said Springfield Community Loan Officer Ann Peck. "The property is actually the collateral for the loan."

Applicants to this loan program must be able to prove that they will create one new full time job for every $35,000 they borrow. The Faade Improvement Program allows businesspeople to borrow up to $40,000 for the restoration of ailing buildings in the center city area. Both programs are temporarily out of funds because "the demand exceeds the funds, but since the city's program is nonprofit the funds are revolving," said Peck.