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Show , Bj KENNETH J, ROSE Editor's Note: Bottom Line" author au-thor Kenneth J. Rose is the owner of Rose and Associates, a small ' business tax consulting and financial finan-cial planning firm in Bountiful While the U.S. Small Business Administration offers many programs pro-grams mat will benefit small busi-. ness owners, one of the biggest misunderstandings about the SB A is their loan program. Yet it can still . be a good source for financing for the growth or expansion of your ImsinessT"" Some very notable businesses got their start with SBA assistance, Apple Ap-ple Computers, MCI Telecommunications, Telecom-munications, Federal Express, Nike Shoes, and Winnebago, to mention just a few. There are somd things that need to be clarified about SBA loans, however. First, for the most part the SBA does not offer direct loans. Occasionally Occa-sionally direct loans are available, in inner city and other heavily depressed areas, and in some very unique situations. Next, there is a myth that SBA loans are for higher risk borrowers who can't get a loan somewhere else. The mainstay of the SBA's loan program is their loan guarantee program. Under this program, it is the bank that is making the actual loan and the SBA guarantees a portion por-tion of that loan. The lending requirements re-quirements will be the bank's. Th SBA will also have some loan requirements, but they will generally parallel very closely those of the bank. The degree of SBA in- volvement.in, the process will depend de-pend on the status of the lender with the SBA. The SBA assigns lenders to one of three levels of status with increasing independence and decreasing SBA involvement in the lending decision. The first level is approved lender. Next is certified lender. Finally is . preferred lender status. Under this status, SBA has enough confidence in the bank as a lender that they allow the bank to make the entire lending decision themselves. The SBA becomes involved only in a review capacity. Incidentally, there 'are only two preferred lenders in Utah. The borrower will still need to have sufficient collateral, he will still need to have a good credit record, and he will still have to' show that he is providing some of the capital required from J!s own source and he will still neea to show that he has the expertise and ability to successfully operate a business. What are the advantages to getting get-ting a loan through the SBA then? They basically fall into two areas. The SBA limits the interest rate that can be charged on the loan, Which " ' - can be a break, for some borrowers. That rate is 2V points over the prime rate for loans seven years or longer and 2Y points over prime for loans under seven years. The other big advantage can be in the term of the loan. Most standard . bank loans will limit the term to . three to five years, maybe as long as ; ten years for real estate. With an . SBA loan you can get a term xf up to seven years for working capital, . i up to ten years for equipment, and ? up to 25 years for real estate. The -- " result is lower payments on the loan. ; A third advantage is the possibility possi-bility of borrowing additional work- ing capital. Many banks will loan only enough to finance the assets needed for the expansion. Take a look at your borrowing i needs. If the SBA can fit into the picture it could be well worth the effort to find out more detail about the .programs. If your banker can't answer your questions, find one that can, or contact the SB A directly. |