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Today’s loan climate

David Leonard

Recently, I attended a business seminar where owners were encouraged to express their company’s pressing needs, which included several owner comments related to how difficult it was to obtain a business loan. One of the presenters was a local banker, who responded: “My first responsibility is to my shareholders, but to remain in business I must pay attention to my current customers.” Like me, everyone in the seminar gained added insight into an important aspect of business management.

Sometimes under the barrage of current events affecting the economy and impacting small businesses, we forget that lenders are a business, too, with customer relationships that must be nurtured and customer needs that must be met. However, in some cases banks determine they cannot meet all the current expectations of their existing customers. That leaves the business owner to decide if their local lender is fulfilling this basic customer service objective. If not, where can the business owner get the lending service he or she needs? Sometimes, the issue is larger than just about financing. Is the market signaling it’s time to change the company’s operation or focus? Is it time to implement an exit strategy from the business?

Currently, a majority of the callers to the U.S. Small Business Administration Office in Reno express a singular need: “I need financing”. Often the caller wants an SBA grant, money that does not have to be repaid. We explain that for both existing and startup for-profit businesses, the financing available will always be in the form of a loan that must be repaid. The SBA’s role mandated by Congress is to provide a guarantee to the lender that currently (under the stimulus bill) reimburses up to 90 percent of the loan amount to the lender in the event the borrow cannot repay the loan.

The SBA is the host agency and resource partner for four organizations that can counsel the business owner in making critical banking and business decisions. The organizations are: the Nevada Small Business Development Center, SCORE, Nevada Microenterprise Initiative (Nevada’s Women’s Business Center) and the Veteran’s Business Outreach Center. The counseling is confidential and free. Further, the SBA’s resource partners conduct seminars to assist existing and potential business owners in gaining access to their counseling services and to those of our business partners.

The Nevada Small Business Development Center will conduct a loan clinic on Wednesday (Feb. 17) at Redfield Campus 18600 Wedgewood Parkway, Building A, room 227 starting at 5 p.m. At this clinic business owners will be able to speak to lenders about their financial needs.

There will be lenders present participating in SBA loan programs for existing qualifying businesses, and these lenders will also consider making loans to qualifying start-up businesses.

There is considerable confusion regarding just what it takes to be considered for an SBA guaranteed loan. These loans are made at market-based interest rates, which can be variable, and the SBA requires lenders to review a loan in the same way as those made conventionally. Generally, to qualify for a loan guaranteed by the SBA an applicant must:

* Be a good credit risk (with credit history acceptable to the lender);

* Have management experience or have a key person with this experience;

* Be a U.S. citizen or;

* Be a legal permanent resident or;

* Have verifiable documentation they are in the United States legally, and can remain here for the term of the loan, and have collateral in the United States that fully secures the loan, and have managers that are United States citizens or legal permanent residents;

* Be prepared to provide documentation of the circumstances for any previous arrests in the United States, which can determine eligibility;

* Have adequate funds that can be injected in the project (determined by the lender), and if the funds are borrowed from another source could be required to be set aside (cannot be repaid before the bank loan) for the term of the loan;

* Have reasonable collateral (determined by the lender), and if collateral is available, it remains pledged until the loan is fully secured based on its liquidated value (required by SBA); and;

* Understand that an SBA guaranty is to the lender and does not negate the borrower’s obligation to repay the loan;

The applicant needs a business plan that:

* Outlines the total project cost;

* Details the eligible use of proceeds or “what money will be used for;”

* Includes the loan amount requested;

* Includes historical financial statements for ongoing businesses that demonstrate repayment ability (verified by IRS records); and,

* Includes reasonable financial projections that show the potential to repay the loan (determined by the lender and SBA) for start-ups or businesses that cannot demonstrate historical repayment ability.

Loan clinics provide qualified business owners access to counselors who can assist them in preparing this documentation and to lenders who are making loans in these difficult economic conditions. Register for the loan clinic on the NSBDC Web site: https://ssl.nsbdc.org/education/calendar or call 784-1717. Space is limited.

David Leonard is senior area manager for the Small Business Administration in its Reno office. Contact him at david.leonard@sba.gov or 827-4923.