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Smart Financing: Small Business Administration Loans

Businesses face formidable challenges in financing facility expansions, equipment acquisitions, marketing and other programs. However, a powerful partnership of the U.S. Small Business Administration and banks can help with special loan programs. Preferred Lender Program can help tremendously with the process.

Miki A. Mobrand, Business Banking, KeyBank

http://www.nwen.org/venturer/0404/article1.htm

For small businesses in our region, the good news is now ringing out more loudly and clearly than the bad news from Wall Street.

However, take it from a former entrepreneur-turned-banker, financing a young business remains a formidable challenge. Particularly in the case of small companies, finding accessible and affordable sources of capital to grow your business can seem overwhelming. My message is simple – don’t forget about ‘SBA’ lending. The U.S. Small Business Administration (SBA) lending programs are easily accessible through a number of resources.

Finding a ‘Preferred Lender Program’ is a smart first step. Preferred lenders include banks that are specially qualified to facilitate SBA loans to their small business customers. Among them is KeyBank, which has dedicated a team of specialists who work with SBA loans. While most banks combine all loan underwriting functions, KeyBank instead has a separate, stand-alone credit team of specialists just for SBA loans, experts in SBA lending and its distinctive credit requirements.

Most business people know the SBA chiefly for its loan programs, and for good reason. The SBA provides funding to businesses — including small family-owned firms, for example — that otherwise might not be able to access the financial resources they need to grow and prosper. The SBA accomplishes this by guaranteeing major portions of its loans. This guarantee reduces risk to the banks that are its lending partners, and naturally this encourages banks to finance these growing companies.

SBA loans are designed to meet the specific needs of small business owners, and terms and costs are reasonable. Therefore, it’s not surprising that SBA lending has increased steadily over 8 percent per year since the early 1990s economic boom.

SBA loan programs share important features that are very attractive to growing businesses.

* They offer longer terms than conventional loans: as long as seven years for working capital, 15 years for equipment, and up to 25 years for real estate.

* They require lower down payments, and they offer interest rates that are lower than conventional business loans, including variable-rate loans — usually 1.5 percent to 2.75 percent over the prime rate.

* Flexible repayment options are available on SBA loans including monthly installments of principal and interest. There are no “balloon payments,” and borrowers may delay their first payment up to three months with prior arrangement.

To qualify for an SBA loan, a company must be a small business under the SBA’s specific definition. It must be independently owned and operated, not be dominant in its field, and must meet the SBA employment or sales standards for different business types, such as:

* manufacturing: varies by industry up to 500 employees

* wholesale: up to 100 employees

* services: varies by industry

* construction: up to $17 million in annual receipts

Potential borrowers must also meet other more general qualifications. Business owners must be of good character with strong and relevant management skills. Businesses must have net worth that is consistent with industry averages. They must also demonstrate an ability to repay the loan based on historical cash flow, and must also possess collateral that is reasonably adequate to secure the loan. This is not only important to mitigating lending risk, but it is also a great way for the business owner to calculate their own, personal, financial risk.

Qualified businesses can use SBA-guaranteed loans for many different small business needs, including:

* constructing new commercial buildings, as long as they are owner-occupied

* purchasing land and existing buildings, which also must be owner-occupied

* expanding or modernizing facilities

* purchasing machinery, equipment, fixtures, leasehold improvements, or inventory

* financing increased receivables and augmenting working capital

* Acquiring/purchasing a business

It’s difficult to imagine any small business that doesn’t have the need or desire to accomplish at least one of these important improvements that SBA loans make possible. Most importantly, with the help of a Preferred Lender Program, it doesn’t have to be a difficult process. Companies can either contact the SBA directly or a preferred lender with experience in SBA loans.

SBA preferred lenders are allowed to make certain loans without prior approval from the SBA. Being chosen as a preferred lender is a privilege extended to only a limited number of banks in the United States, and they receive preferential loan processing from the SBA.

To become a preferred lender, a bank must demonstrate a superior track record in originating and servicing loans, chiefly through achieving a high volume of loans and a high percentage of good loans; that is, those without problems or defaults.

The SBA makes available information on preferred lenders upon request. And individual preferred lender banks promote their SBA loan services independently.

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Miki Mobrand is a former small business owner/entrepreneur. She has started and successfully sold three unique businesses, each with their own challenges and rewards. Now, as a Business Banker with Key Bank, Miki understands and relates passionately to both sides of the equation when it comes to financing a small business. Miki oversees KeyBank’s small business division for the Seattle-Cascades District. She is happy to discuss questions regarding small business financing as well as Key’s SBA Preferred Lender Program. Miki can be reached directly at 425-246-9560 or .

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