Posted: 02/21/2012 10:11 am
Lenders are concerned that President Barack Obama’s proposed 2013 budget and the political scuffling in Congress may leave the U.S. Small Business Administration and U.S. Department of Agriculture with inadequate loan-guarantee authority to satisfy the needs of small-businesses owners. If that happens, and “guarantee coffers are low, the borrower needs to worry if their loan will be approved before the program runs out of money,” says Mike Rozman, co-president and chief strategy officer of BoeFly.com. The New York City-based company matches borrowers with lenders online. Of further concern, he notes that “there is still limited conventional financing for start-ups.”
Before the financial meltdown and the Great Recession, start-ups were able to get financing when the applicant had related experience, invested approximately 20-percent equity into the venture and pledged collateral. That has changed drastically and fledgling entrepreneurs are left with few, if any alternatives. For more mature companies, however, “we’ve seen an increase in conventional lending over the past six months for existing profitable businesses seeking to expand or refinance debt,” Rozman says.
Kraig Kramers, a management consultant and consummate entrepreneur who turned around such Fortune 500 Companies as Snapper-brand lawn mowers, has advice for surviving economic turmoil and a possible tightening of credit. “Stay close to lenders and prospective investors long before you need them,” Moreover he says, “You must have prior happy relationships with those who will provide the cash timely when you really need it.”
He also coaches business owners to drill down “into cash management with tools you can introduce into your business to accelerate incoming cash.” Additionally, “Delegate these tools to those managers and employees who can do the best with them.”
Borrowing an idea from “a Fortune 500 company,” he says, “Look at a detailed balance sheet, yes, to the penny.” As a result, “we found a half-million-dollar stock certificate that had been forgotten.” But the technique is not just for large corporations. Kramers also found “recapturable deposits in several smaller businesses this way.”
Equally as important, cleaning up your financial statements, footnoting the most important line items and highlighting key financial ratios, prepares you for making a loan application. Furthermore, include an extensive discussion telling the loan officer and her committee how you arrived at the forecast for the next 12-month’s proforma.
Rozman adds that if customers get the cold shoulder from their exiting bank, the borrowers will need to be “aggressively seeking alternatives.” BoeFly’s 1,500 participating lenders pay subscription fees in order to view applications from entrepreneurs seeking financing. In addition to conventional loans, some of the lenders make loans that are partially guaranteed by SBA and USDA and may consider start-ups — especially for franchises.
SBA’s 7(a) loans are suitable to finance real estate, equipment, machinery, working capital, and to purchase an existing business. The agency’s 504 program is for fixed assets and most suitable to build, expand or purchase real estate. More recently, SBA initiated a temporary 504 program to “rescue” borrowers who have existing loans with balloon balances coming due and find that take-out lenders are scarce.
The basic 504 program requires job creation or retention and does not include working capital. But the temporary refinancing program waives the job-creating requirement. And it also allows some working capital for projected operating expenses.
USDA’s Business and Industry Loan Program is similar to SBA’s 7(a) but the businesses must be in rural locations. Sometimes, sparsely populated locations on the fringe of urban areas are approved. Unlike SBA’s loan limits of $5 million for 7(a) and approximately $10 million for 504, USDA’s B&I program tops out at $25 million under certain circumstances. And the loans may go up to $40 million for rural cooperative organizations that “process value-added agricultural commodities,” according to USDA’s web site.
Small-business owners are holding their collective breaths as the Obama Administration’s proposed budget wends its way through the politically-charged Congress. It is as much the chief executive’s opening salvo, as it is his wish list. But if the budget that survives includes large reductions of SBA and USDA guaranteed loans, you need to be prepared.
To test the water, talk to your bank’s loan officer about your chances of getting financing. It is better to see if your loan officer tap dances and stutters now than before crunch time. And if you don’t get a positive reply, start looking for other funding alternatives.
Jerry Chautin is a volunteer SCORE business counselor, business columnist and SBA’s 2006 national “Journalist of the Year” award winner. He is a former entrepreneur, commercial mortgage banker, commercial real estate dealmaker and business lender. You can follow him at http://www.Twitter.com/JerryChautin
Copyright © 2012 Jerry Chautin — All rights reserved
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For many of us, the idea of starting a small business is a lifetime goal. In fact, the chance to be your own boss by providing a product or service ranks right up there with homeownership as one of the true American dreams. Despite tough economic times, the environment for starting a small business in many parts of the country is better than you might think, particularly in view of the various assistance programs made available for small business owners.
An enterprising business owner can be very successful, but it takes a lot of work. (And usually a lot more time and money than the business plan calls for.) Christy is an individual who knows the score. A Registered Yoga Teacher, she has been helping people achieve healthier lifestyles through massage therapy, group exercise, yoga, and Pilates for over 17 years. However, success had rendered a problem for her: the small storefront she used for years in a downtown Midwest city is just too small for her growing clientele. She faced a daunting task: Find a new location that would be a lot larger — yet also fit into her operating and personal budgets.
Driving to work one day through town, she noticed that ‘for sale’ signs had just been posted in front of a small one-story home nearby. All along Christy had been thinking about finding a larger storefront or office. Suddenly, the idea of conducting her instruction classes in a small home made sense. The next several weeks were consumed with meetings and communications with the local town officials, realtors and the chamber of commerce, to be sure that the zoning was correct and that she could have access to some small business assistance programs.
That was three months ago, and the bottom line today is: Christy has much more room in brand new surroundings, her customer base is growing by the week and it all fits into her budget very nicely. Things are looking up now for her.
All told, there are an estimated 15 to 17 million small businesses operating in America today. Small businesses are still the backbone of our communities – our Main Streets! — and are seen by many as the embodiment of the spirit of entrepreneurship.
Entrepreneurs are credited with creating the vast majority of new jobs and employing the majority of the nation’s workers. Granted, big businesses have emerged in fields where new technologies permitted economies of scale in the production and/or distribution of goods. Still, small businesses have remained vital to the nation’s economic development, and even more important as a component of American culture.
Even as our new 21st Century embraced what many Americans could view as superior efficiency and productivity (for both small and big businesses), Americans continued to revere small business owners like Christy for their self-reliance and independence and can-do spirit.
Small businesses have also been the primary way immigrant families coming to America have climbed the economic ladder and achieved the American dream. Many minority populations today — in urban, rural and suburban communities — have seized the small business pathway as a road to economic independence and building personal wealth.
CIN editors have always recognized the vital role played by small businesses, and we devote a large section of the CIN to them. This resource tool provides basic information – including the pros and the cons of small business ownership – basic start up information – government assistance programs on the Federal and State levels – grassroots programs provided by NCRC members – private sector assistance programs – franchising basics – banking connections assistance – available small business resources and the latest small business news and information. Here are some recent excerpts:
Small Business Owners Think Controlling Employee Expenses Will Lead To Cost Savings
(Source: Gaebler) A recent Citizens Financial Group/Mastercard study found 55 percent of small business owners believe better management of employee expenses would reduce costs and benefit their business, while 40 percent said more control over employee spending would give them a better peace of mind.
Wells Fargo Lends More Dollars to America’s Small Businesses Than Any Other Lender
(Source: Market Watch) 2011 US Small Business Administration data shows Wells Fargo & Company is the top lender in dollar volume, approving $1.2 billion in SBA loans to America’s small businesses for the 2011 federal fiscal year.
How Small Business Owners Were Hurt by the Fall in Home Prices
(Source: Forbes) Personal borrowing plays a key role in how many small business people finance their companies. When the housing crisis hit, small business owners that relied on home equity to finance their companies’ operations faced a credit squeeze. Thus, small businesses have access to about $25 billion less in credit than they would have had if the trend in home equity loans had continued in the direction it had been going in the first half of the 2000s.
Coffee Fix: Starbucks Pushes Small Business Loans
(Source: Business Week) New York Times columnist Joe Nocera lauds Starbucks for supporting community development financial institutions, the nonprofit lenders serving small businesses and affordable housing in low-income communities. The coffee chain is donating $5 million and encouraging customers to pitch in at the checkout line as well.
Geithner Defends Performance of Small Business Lending Fund
(Source: Business Week) Treasury Secretary Timothy F. Geithner says that the Small Business Lending Fund had been successful even if it was smaller than envisioned. The program closed Sept. 27, having distributed $4 billion of its $30 billion to 332 community banks nationwide.
- PR Tips for Small Business (wordsforhirellc.com)
- Small Business Concepts That Work in Today’s Economy (cash-bandit.com)