Q: I recently applied for a
loan to expand my building. My banker suggested an SBA loan, but
didn't answer my questions about government loans and
didn't have the program available. Can you help me?
A: If your banker says an
SBA loan might be better for you but can't offer the program,
quite frankly it could be a polite way of saying no. Many banks use
this line when they don't feel comfortable lend-ing to you but
still wish to maintain a relationship because of your deposits or
the referrals you send its way. It's an easy out for them. It
means you'll have to seek financing elsewhere.
The SBA offers guaranteed funds to banks, allowing them to grant
customers longer terms than traditional loans allow. The
entrepreneurial advantage to you is a smaller monthly payment with
no balloons or prepayment penalties down the road. The advantages
to the bank are twofold: a higher premium than traditional loans
permit when the guaranteed portion of the loan is sold in the
secondary market, and an immediate recoup of its capital
investment, letting the bank lend again to other customers. This is
especially important to small, start-up banks with limited
capital-it can help level the playing field and allow them to
compete with the big boys. So, try several of the smaller banks in
your area first. They are often willing to take a risk on local
borrowers because they're committed to reinvesting dollars in
their own communities.
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Seek a lender with a good track record for funding and closing
SBA loans. A bank's SBA program is only as good as its lender.
The appeal of accelerated profits sometimes results in improperly
trained personnel being slotted into loan officer positions to
quickly improve the bank's final bottom line.
To find a reputable lender, contact your local SBA office or
visit www.sba.gov and ask for a
list of Certified or Preferred lenders. They'll know who the
real players are.
Who can answer the business-financing questions that keep you
up at night? Starting this month, consultant, ex-banker and
co-founder of Rainmaker Capital Corp. Doug Hood can.
Rainmaker Capital Corp. co-founder Marilea S. Hood also
contributed. Send questions or personal anecdotes via e-mail to
doughood@mindspring.com.
Originally published in the July 2000 issue of Entrepreneur Magazine