Local lenders, SBA offer small-business financing

by Maria G. Hoover

SBJ Contributing Writer

Small business owners who need loans have several options available, thanks to the Small Business Administration and area lenders. James Combs, branch manager of the SBA office in Springfield, said the SBA used to function as a direct lender to small businesses, but now it primarily offers various loan guarantees.

"What we guarantee is that, if the business should fail, once the assets are liquidated, if there's a deficiency balance, we'll pick up 75 to 80 percent of that deficiency balance," he said.

Combs said the main guaranteed loan program offered by the SBA is the 7(a), which typically has an 80 percent guarantee on loans up to $100,000 and a 75 percent guarantee on loans of more than $100,000. However, Combs noted that $750,000 is the maximum guaranteed amount of the 7(a) loans.

Under the umbrella of the guaranteed loan program are several other options for financial assistance, including the SBALowDoc, SBA Express, CAPLines, the Export Working Capital Program, and the International Trade Loan.

Combs said the SBA Low Documentation Loan, or SBALowDoc, is has a less extensive application to accompany the normal documentation required by commercial lenders. He added that for the SBALowDoc, the maximum loan amount is $150,000, but business owners benefit from having a quicker turnaround period and less paperwork.

In order to qualify for the SBALowDoc loan, Combs said both the business and the people running it have to have good credit history and a clean record under the law misdemeanors cancel eligibility for a LowDoc loan.

Like the SBA LowDoc loans, Combs said SBA Express loans have a maximum loan amount of $150,000, but Express loans are only available from SBA preferred lenders. He explained that almost any bank can work with the SBA to offer small business loans, but preferred lenders can commit the SBA to the loans themselves, and use their own paperwork in exchange for a 50 percent SBA loan guarantee.

Combs said the Export Working Capital Program is a short-term line of credit designed to assist small businesses with the financial necessities of exporting goods, such as labor, inventory and accounts receivable. He said the International Trade Loans are longer-term loans that help companies compete in the export market. These loans are often used to pay for new plants or new equipment, or they may be used for working capital.

Aside from the 7(a) guaranteed loan program, the SBA also offers 7(m) microloans, which are not guaranteed. Combs said the microloans are handled by an intermediary, which is typically nonprofit. He said the intermediary that works with the Springfield region on microloans is Rural Missouri Inc., which is based in Jefferson City. Combs said RMI also handles 504 loans and the SBA Prequalification Program.

Ken Lueckenotte, executive director of RMI, said although the 7(m) microloans are not guaranteed by the SBA, funding for those loans comes from the SBA. "We borrow money from the SBA to re-lend to businesses that are generally pre-bankable. Some lack a credit history or have credit problems ... some reason why the bank is not willing to risk making a loan," Lueckenotte said.

He added that microloans can be between $500 and $25,000, and the only thing microloans cannot be used for is to purchase real estate.

Lueckenotte said the 504 loans are for new and expanding businesses that need fixed-asset financing for things like land, buildings and equipment. He said 504 loans are a partnership between the applicant, the SBA and the commercial lender. He added that one stipulation of the 504 loans is that for every $35,000 loaned, one job has to be created or retained, but he said sometimes that requirement can be waived.

For example, Lueckenotte said, if a business is in a rural area, if it is using the 504 to expand exporting or if the funding is necessary because of government cutbacks, it is possible that the job creation or retention requirement may not be necessary.

Lueckenotte said the SBA Prequalification Program is designed to assist women, veterans, minorities, rural businesses and exporters who are looking for small-business loans. He said the program assists applicants with the loan application and helps them obtain a tentative SBA guarantee before they ever go to the bank. He said that may make it easier for the bank to feel comfortable making the loan.

Combs noted that SBA guarantees are primarily for businesses that can't get conventional bank financing on their own, and if a business can get a bank loan without an SBA guarantee, that's what it should do.

"We're here to help businesses that might need longer terms, new businesses that have no experience or a lack of management, or maybe the collateral they have is not acceptable to the bank or (not) enough for the bank to feel comfortable making the loan," Combs said.

However, Combs added that sometimes, even when a business meets the bank's qualifications, it's still in the business's best interest to get SBA backing.

"Sometimes, when a new business starts up, it may have enough equity, collateral and experience, but has slow cash flow coming in to start generating revenue, it may be in the best interest of that business owner to come to us ... they might be able to get a longer maturity and avoid putting a squeeze on their working capital," he said.

Commerce Bank is one area lender that offers conventional commercial loans, as well as SBA guaranteed loans. Commerce is an SBA preferred lender. Jo Hicks is a vice-president of commercial loans for Commerce Bank. She said Commerce offers both short- and long-term financing for businesses that have a couple years of successful operation.

"With long-term financing, the payments are spread over time, and often used for equipment or vehicles, something with a longer life. These loans are paid for through various operating cycles as the piece of equipment produces income," she said.

She said long-term loans mature in three to five years. Commerce works with the SBA when companies need longer terms.

Hicks said Commerce offers two types of short-term financing that revolving line-of-credit borrowers can use, repay, and use again, and short-term financing for companies that have seasonal needs for an increase in cash.

She said the short-term revolving line of credit is often used for companies that have accounts receivables bases and need money for daily operating costs while those are being collected. She said one example of companies that use the seasonal short-term loans is retail businesses that need to build up inventory for the Christmas season.

Hicks said Commerce does offer conventional loans for start-up businesses, but, she said, sometimes, based on circumstances, Commerce works with SBA backing for start-up loans.

"For new business start-up, where repayment is based on projections and not historical earnings, the SBA offers good alternative financing," Hicks said.

Liberty Bank also offers conventional financing for small businesses, and was recently named the area's top-producing SBA lender for fiscal 1999. Tim Baker, vice president of commercial lending at Liberty Bank, said Liberty Bank offers different types of loans that are structured depending on the businesses themselves and the types of collateral available.

"We have conventional loans secured by real estate as well as loans secured by business assets such as equipment, inventory and receivables," Baker said.

He added that Liberty Bank also makes small business loans through the Missouri First Linked Deposit Program, which he said is a program designed to assist businesses that have fewer than 25 employees. He said loans made through the Missouri First program are often used to buy equipment.

"With the Missouri First Link program, the state makes a deposit in our bank for the amount of the loan, and based on the interest rate of that deposit, we can offer reduced rates on the loan for the small-business owner," Baker said.

Tim Swan, also a vice president of commercial lending at Liberty Bank, said because Liberty Bank is locally owned, it offers quick turnaround on loan applications, which is something small business owners may need.

"It's very important to small business owners some don't realize they're in trouble, or something comes up that they need to take care of quickly so they can't wait 30 days for a decision ... they need to move quickly," Swan said.

Liberty Bank works with the SBA in many cases to make small business loans, but Baker and Swan both noted that even with the SBA guarantee, the bank still has to approve the loan. Swan said Liberty Bank tries to be helpful in meeting the financial needs of small businesses.

"We built this bank by lending to small to medium businesses. We strive to help small business customers out, because we know if they're successful, down the road, they'll be larger customers," Baker said.

Swan added that Liberty Bank takes a team approach to commercial lending.

"The SBA is a tool we can use, and we bring in accountants and other types of professional services, and we're all members of a team trying to help small businesses ... we depend a lot on their success, and we want to see them succeed," he said.