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Business Briefs

The small business ñ finance options in economic recovery

Historically, America has been known throughout the world as the ìLand of Opportunity.î Ben Franklin was our country’s first successful entrepreneur almost 250 years ago. Many of our ancestors flooded the Great Hall of Ellis Island seeking this legendary opportunity. Over the years, America has led the world in providing the chance to succeed to anyone who is willing to work hard. Americans should be proud of their small business background.Small business has and should be the backbone of our economy. It provides a high standard of living and quality of life. It provides most of the new jobs that are generated. It will also drive the recovery in our nation and our local communities.Business startups and expansions have been slow during the past five years, as the economy struggled through recession. In part, this slower business expansion was an outcome of tightened lending underwriting standards and less lenient loan structures. Part of this was a reaction to the overly lax lending standards of the boom years that caused challenges both for lenders and business owners when the recession hit.However, the time is ripe for a change in mindset. As Americans, we need to return to thinking about what has made this nation great ñ innovation and entrepreneurship.With the more stabilized economy, confidence levels are returning. Small businesses are beginning to think about possible expansion, diversification of product lines or improvements to their facilities. Entrepreneurs are stepping out and looking for ways to enter the market with new business ideas. You may even be thinking about a business idea. The challenge remains how to finance those small business needs.Government guaranteed and participation loans such as the SBA 7a and 504 loan programs are excellent financing opportunities that provide benefits to both the borrower and the lender. As a result of these programs, some loans can be made that would not traditionally be available.The SBA loan structures are unique. The business borrower needs to plan ahead for the time necessary to consider the loan structure options. The following are some ideas if your small business is considering SBA lending structures as an option:SBA 504 loans:These loans are available to business owners for real estate purchases for owner-occupied business facilities. This is an excellent time to consider an owner-occupied facility so that you can be your own landlord. The product is a government lending program where the local lender provides a loan in primary position and a community development lender provides another loan in second position for the purchase of commercial owner occupied property. The product structure provides benefits to the borrower from a lower equity or down payment requirement than traditional loans for commercial facilities may require. There are also potential benefits from interest rate structures on the loan as the community development lender in second position is able to offer a long-term amortization and a fixed rate on their piece of the financing.SBA 7a loans:These loans are government guaranteed loans where your local lender considers a loan for a variety of traditional commercial needs such as equipment purchases or working capital needs. The loan is extended subject to a government guarantee. The benefits to the borrower and the lender provide a way for the lender to extend commercial loans that may not meet the lender’s traditional underwriting requirements for borrower equity requirements and collateral coverages. It also provides the potential to consider startup business requests. Startup business loans can be more challenging as repayment sources are based wholly on projected revenues, not historical business performance. The SBA 7a guarantee can help bridge the traditional commercial lending requirements for equity, collateral coverage and historical repayment requirements.In closing, these products offer excellent opportunities for the small business owner to experience the American dream by entering the market or expanding their businesses as the market returns. Be prepared. These products are time and paperwork intensive. However, they offer great opportunities to meet the business owners’ financing needs. Call your local banker to learn more about these financing opportunities.

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