Small businesses key in on government loan programs

As state officials work out details of a low-interest microloan program intended for Missouri's smallest businesses, interested entrepreneurs say the suggested $25,000 per-loan cap looks a little stingy from where they're sitting.

Missouri Gov. Jay Nixon authorized the program via executive order in January, but details have been slow to materialize. One aspect that hasn't changed since the program was unveiled is the loan limit, which some business owners say is too low.

"That is pretty meager," said Wyatt Zornes, owner of Z Graphics, a Springfield-based print shop specializing in foil stamping, embossing and die cutting. "... I would have thought bottom dollar would have been $50,000, especially if you wanted to hire some people."

Zornes was one of about 250 business owners who inquired about the microloan program through the Missouri Department of Economic Development's Web site earlier this year. He was hoping to take out a low-interest loan to purchase an automated die-cutting press - which alone would cost about $30,000 - and to hire someone to operate the new equipment.

Small businesses on the quest for affordable financing are eagerly awaiting more information about the microloan program as they weigh their borrowing options in today's compressed lending climate, and government agencies are doing their part to meet the demand.

" ... There are too many small businesses right now that are simply struggling to keep doors open," DED spokesman John Fougere said. "We believe that - to turn our economy around - these owners ... must be able to access capital to expand their operations and create new jobs."

On the drawing board

Jim Bland, president of Springfield-based medical supply distributor In-Quest Technologies, would like to know more about the state's low-interest loan program. His company is looking to finance a portion - roughly $250,000 - of its planned expansion into Oklahoma and Illinois later this year.

Bland contacted DED about the microloan program, but he said officials were "very vague." That's because the state was more interested in gathering information than disseminating it, Fougere said.

"We asked them a number of questions to help us determine how to best structure the program," he said.

Here's what's on the drawing board: Low-interest loans up to $25,000 would be funded through a one-time, upfront $2 million grant from the Missouri Development Finance Board. DED is recommending a 3 percent interest rate on loans that would have to be paid back within 10 years, Fougere said.

The program would target Missouri-owned businesses with no more than five employees - including the owner - that are located entirely in the Show-Me State, he added, noting that the parameters have not yet been finalized.

Most businesses that contacted DED about microloans had fewer than five employees and were at least six years old, Fougere said. And several owners had similar responses when asked how they planned to use the money, he added.

"The vast majority said working capital - operating costs, payroll, utilities, rent," Fougere said.

In-Quest Technologies and Z Graphics, however, are interested in borrowing money on the cheap for expansion purposes, but both owners said they need more than $25,000 to get the job done. Bland said In-Quest can't afford to wait more than 90 days for specifics of the loan program.

"We're ready to stomp on the accelerator, but we've still got a foot on the brake," he said, invoking a drag-racing metaphor. "I hope at least the car's on the track."

The MDFB has issued a request for proposals from loan companies interested in servicing the loans, and the board's Finance Committee is reviewing DED's recommendations, Fougere said. The board meets again April 21.

"We know what's at stake here," Fougere said.

Other financing options

On the federal level, recent modifications to the U.S. Small Business Administration's most popular loans - through its 7(a) program - seem to have spurred more interest from local businesses and community banks.

Walter Cowart, who manages the SBA branch office in Springfield, said two particular revisions are making SBA loans more attractive to both lenders and borrowers.

The government now guarantees up to 90 percent of loans available through the SBA's 7(a) program - a mitigating factor that has prompted community banks like Springfield-based OakStar to start making SBA loans, Cowart said.

The SBA also has temporarily waived upfront fees for 7(a) loans, an expense that may have previously deterred businesses from applying, he added.

Hugh Sutton, president of Springfield-based boat accessory manufacturer Republic Inc., said an $85,000 SBA loan through Liberty Bank will enable his company to settle mounting debts with numerous vendors.

Republic has been hit exceptionally hard by the recession, Sutton said. Sales have dropped by more than 50 percent since last fall, and the family-owned corporation has reduced its staff to 10 employees from 25, he said.

"We weren't really prepared for that kind of downfall," Sutton said. "Without the SBA note or some influx of cash, I think that our business would have been in jeopardy of failing simply because we were out of cash. ... This gave us a second breath."

Sutton said Republic and Liberty Bank delayed the company's SBA loan application just long enough to take advantage of the fee waiver and 90 percent loan guarantee. The loan was closed April 15, he said.

Zornes at Z Graphics said he'll likely pursue an SBA loan - a financing option he's turned to twice in the past - if the state's microloan cap remains at $25,000, although he'd hate to pass up a loan at 3 percent interest. He said the interest rate on his last SBA loan was 10 percent.