Q: I own two doughnut shops that I financed with an SBA loan through a local lender. I have an opportunity to buy three more in an adjoining town, but when I approached my lender for financing, he turned me down. He said I was ineligible for additional SBA financing and that the bank did not wish to consider funding my deal conventionally. How should I buy these stores?
A: You may be in luck. The reason your lender turned you down for financing is probably that you've already reached the loan limit the government is willing to guarantee the bank in case you default. But in December, before leaving office, President Clinton signed into law a mandate increasing the maximum loan guarantee on several programs; for the SBA, it raises the amount from $750,000 to $1 million. Eligibility requirements for government-guaranteed loan programs change quickly and often, so this latest bit of news may not yet have reached your little burg. Try approaching your banker again armed with this bit of info and see if his interest is renewed. The new guarantee cap might be just enough to entice him to make you a second loan. If not, he may be trying to politely tell you that you've outgrown his institution.
An alternative is to approach another lender about a conventional loan that will allow you to pay off the existing SBA loan and buy the new stores. If you go this route, be sure to closely compare the terms and rates of that conventional loan with your SBA loan. Odds are, you'll still come out better if you stick with the SBA.
In your search, don't forget non bank lenders. They often offer more aggressive rates and terms and may go further to get your business, especially given that you have two successful shops. Three good non bank lenders to approach are Amresco Inc., The CIT Group and Textron Financial Corp.
Doug Hood is co-founder of Rainmaker Capital Corp., a capital acquisition consulting company in Cartersville, Georgia. Co-founder Marilea S. Hood contributed to this article. Send questions or anecdotes via e-mail to firstname.lastname@example.org.