Business Advice for Arizona

I’ve been in the financial arena for over 25 years, and I would tell you that the SBA finances small business.  But  do you know how they do it?  Do you know about all the other programs that they administer?  Well, today we will start with just one part of the SBA – their 7(a) program. 

 

To quote their website,7(a) loans are the most basic and most used type loan of SBA’s business loan programs.  All 7(a) loans are provided by lenders who are called participants because they participate with SBA in the 7(a) program. 7(a) loans are only available on a guaranty basis. This means they are provided by lenders who choose to structure their own loans by SBA’s requirements and who apply and receive a guaranty from SBA on a portion of this loan. The SBA does not fully guaranty 7(a) loans. 

 

Actually the SBA does not fully guaranty any loans; the maximum is 90% in certain programs.

 

A key concept of the 7(a) guaranty loan program is that the loan actually comes from a commercial lender, not the Government. If the lender is not willing to provide the loan, even if they may be able to get an SBA guaranty, the Agency cannot force the lender to change their mind. Neither can SBA make the loan by itself because the Agency does not have any money to lend. Therefore it is paramount that all applicants positively approach the lender for a loan, and that they know the lenders criteria and requirements as well as those of the SBA.   In order to obtain positive consideration for an SBA supported loan, the applicant must be both eligible and creditworthy.

 

And to repeat, this is a key concept.  Small businesses would like the SBA to be able to provide more money when banks are not able to provide credit, as in the current environment.  But the SBA does not actually have any money to lend.  And even though they provide a guaranty for half or most of the loan, depending on the program, they can’t force the bank to loan any money.  The SBA will guaranty the loan that the commercial bank makes, assuming that it is meeting the criteria.  But now the banks’ lending criteria are more strict than what the SBA requires.  So the SBA has been guaranteeing fewer loans.

 

I asked Jim Pipper, Marketing & Outreach Specialist here in the Phoenix office of the SBA, to comment on the information in the press about the SBA’s lower loan volume in 2007.  He confirmed that lenders are not willing to take on as much small business lending as the SBA is willing to guaranty.  In fact the SBA is projecting lower loan guaranty volume for their next year as well.

 

If you are looking for an SBA lender, going to your bank is probably the first step.  But this link will take you to the Arizona SBA’s list of banks that are currently doing SBA loans.  

 

Please read the caveats at the top.  Some of those banks in the yellow/beige group may be new lenders, or just haven’t replied to the survey.  So they might be worth a call.

 

Next post, I’ll share with you some of the other services that the SBA provides.  The SBA is not just about money.

 

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Are you looking for ideas to finance your small business.  After you have maxed out your family and friends, where do you turn?  Traditional ways include the various SBA (Small Business Administration) programs and traditional bank loans.  But if you are a new company, or had a hiccup in your earnings, banks won’t finance you even in the best of times.  And the SBA programs are pretty restricted when it comes to working capital: only $50,000 and the bank has to take half of the risk.  These sources of financing working capital are available when times are normal.

 

But now is not normal.  Tightened lending standards are making it harder for small businesses to borrow money. So more are turning to plastic to make ends meet.
A recent survey by the National Small Business Association in Washington, D.C., finds that 44% of small businesses used a credit card to finance capital needs over the past 12 months and 55% had trouble securing credit. Credit cards were the only source of small-business financing that didn’t decrease between 2007 and 2008. And more than half the respondents say their credit-card terms have worsened in the past year.

 
Unsurprisingly, some credit-card issuers are positioning their cards as a way cash-strapped small businesses can get some relief.

 
American Express’s new Plum card, for instance, lets businesses wait two months to pay off their full balance without incurring interest and finance charges, as long as they pay 10% of the bill by the due date. Amex’s SimplyCash card doles out 1% to 5% cash back each month on purchases.

 
Discover Card and Capital One also offer cash-back rewards cards for businesses.

 
One of the hazards, however, is if they carry a balance they can be at the mercy of the bank.  An annual percentage rate can be raised or a credit limit chopped at a moment’s notice.

 

Some small business owners are taking advantage of some other newer, alternative funding sources.  Peer-to-peer lending sites are an outgrowth of the micro loans industry started for poor borrowers in developing countries.  Business owners with good credit can find money on these sites:  prosper.com and myrichuncle.com.

 

These are two new sources of alternative financing for small business.  Other kinds of financing include factoring (using your accounts receivable to finance your cash flow), equipment leasing (for both new and used equipment), and purchase order financing.  What kind of financing are you using to get through the credit crunch?

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