Published May 2006

Sponsor’s Message
KeyBank: SBA loans a tool for biz success

By Rosario Arias de Carroll
KeyBank

Today, women-owned businesses are finding it easier to get the money they need to expand. The U.S. Small Business Administration offers financing solutions that match the profile of many women-owned businesses. Thousands of American businesses are now turning to this remarkable resource.

How does it work?
The SBA provides funding to qualifying businesses (including small, family-owned and women-owned companies) and helps them to access the financial resources they need to grow and prosper. The SBA assists by guaranteeing major portions of its loans to the banks that are its lending partners. This guarantee naturally encourages banks to provide financing for new and growing companies.

SBA loans also provide the opportunity for startup businesses to develop credit history and typically offer longer repayment terms, a factor that can positively impact monthly cash flow.

Loan options
SBA loans are designed to meet the specific needs of small-business owners. Terms and costs are reasonable. Therefore, it’s not surprising that SBA lending has increased at a steady rate. Here are some SBA loan options:

• The 7(a) Loan Guaranty Program is the SBA’s primary loan guarantee program. Under this program, the SBA can guarantee as much as 85 percent on loans of up to $150,000. On deals between $150,000 and $2 million, the guarantee can be as much as 75 percent.
• The SBA Express program provides loans of up to $350,000 and uses an efficient approval process. The SBA authorizes Express Lenders to use their own forms and procedures to process and service SBA-guaranteed loans, with up to 50 percent of a loan guaranteed under this program. SBA Express permits revolving lines of credit and does not require collateral on loans of less than $25,000.
• SBA Export Express also works through Preferred Lenders to help qualified small companies that are conducting international business to develop and expand foreign markets.

Benefits of SBA loans
These loan programs share important features that are very attractive to growing businesses:

• Longer terms than conventional loans: seven years for working capital, 15 years for equipment and up to 25 years for real estate.
• Lower down payments. SBA loans offer interest rates that are comparable to conventional business loans, including variable-rate loans — usually 1.5 percent to 2.75 percent over the prime rate.
• Flexible repayment options. This includes monthly installments of principal and interest. There are no “balloon payments,” and borrowers may delay their first payment up to three months, with prior arrangement.
• Minimal SBA loan costs. The SBA guarantee fee, ranging from 2 percent to 3.5 percent of the loan value on deals up to $1.5 million, may be financed, and there are no points.

Who qualifies?
To qualify for an SBA loan, a company must be a small business under the SBA’s specific definition: It must be independently owned and operated, not be dominant in its field and must meet the SBA employment or sales standards for different business types, as detailed below.

• Manufacturing — varies by industry, up to 500 or 1,000 employees.
• Wholesale — up to 100 employees.
• Retail — varies by industry; e.g. clothing stores up to $7.5 million in sales.
• Services — varies by industry; e.g. barber shop/beauty salon up to $6 million in sales.
• Construction — up to $28.5 million in annual receipts ($12 million for specialty contractors).

Potential borrowers must also meet other more general qualifications: Business owners must be of good character, with strong management skills; businesses must have net worth that is consistent with industry averages; and prospective borrowers also must demonstrate an ability to repay the loan based on historical cash flow. They must also possess collateral that is reasonably adequate to secure the loan. These requirements are usually lower than those of conventional loans.

Startup women-owned businesses may be a good fit for SBA-guaranteed loans since SBA works well for companies less than 3 years old. As well, many service and retail businesses that are either light on collateral or considered “cautionary,” or riskier, may qualify under SBA.

What can SBA loans be used for?
Qualified businesses can use 7(a) SBA-guaranteed loans for many different small-business needs, including:

• Constructing new commercial buildings, as long as they are owner-occupied.
• Purchasing land and existing buildings, which also must be owner-occupied.
• Expanding or modernizing facilities.
• Purchasing machinery, equipment, fixtures, leasehold improvements or inventory.
• Financing increased receivables and augmenting working capital.

It’s difficult to imagine any small business that doesn’t have the need or desire to accomplish at least one of these important improvements that SBA loans make possible.

How do I get started?
It may be easier than you think.

The best first step in securing an SBA loan is to contact an SBA Preferred Lender, such as KeyBank. Being chosen as a Preferred Lender is a privilege extended to only a limited number of banks in the United States.

Because Preferred Lenders are authorized to act on behalf of the SBA, they can significantly reduce the time it takes to receive a decision about the loan application. Preferred Lenders also receive preferential loan processing from the SBA, a factor that can further speed the loan process.

Of equal importance is the fact that Preferred Lenders offer a higher level of expertise with SBA loans and are more committed to meeting the needs of SBA borrowers. These elements are essential, particularly for startup businesses and entrepreneurs who have not previously explored the advantages of business borrowing.

Although in the past, women-owned businesses have been less likely to borrow to fund growth, the trend appears to be changing — as increasing numbers of female entrepreneurs discover the opportunities of SBA loans.

Rosario Arias de Carroll is vice president of SBA Lending at KeyBank. She can be reached by calling 425-258-0533 or by sending e-mail to Rosario_Carroll@KeyBank.com.

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