Published November 2000

SBA program opens doors
Loan guarantee helps businesses challenged
by collateral, capital issues

By Kimberly Hilden
Herald Business Journal Assistant Editor

Girardi’s restaurant in downtown Edmonds was only a business plan on paper two years ago. Today, nearing its first anniversary, the small business bustles with activity, serving up northern Italian cuisine with a slight French influence.

Owner Patrick Girardi credits the folks at CityBank for making his dream a reality.

“CityBank sat down with me and worked with me,” Girardi said.

After counseling Girardi and understanding his business plan, CityBank was able to secure a $590,000 loan for the new venture, guaranteed by the U.S. Small Business Administration through the SBA’s 7(a) Loan Guaranty Program.

The 7(a) program enables small businesses that normally would have trouble securing financing on reasonable terms to find financing.

“Typically, SBA transactions, they’re all secured, backed up by the government, which helps the bank lend money to a business that doesn't typically have the collateral or capital,” said Bryan Boyle, a commercial lender at CityBank. “It helps the new business owner, start-up business owner or smaller-business owner get in the door.”

The SBA generally can guarantee a maximum of $750,000 under the 7(a) program, according to literature from the administration. The guarantee rate is 80 percent for loans of $100,000 or less and 75 percent for loans greater than $100,000.

Loans made under the 7(a) program are available for purchase of real estate to house the operation; construction, renovation or leasehold improvements; acquisition of furniture, fixtures, machinery and equipment; purchase of inventory; or for working capital, according to the SBA. The funds cannot be used for “speculative purposes.”

The process for getting an SBA-guaranteed loan usually begins with the small-business owner or entrepreneur making a visit to an SBA-authorized lending institution.

Prospective borrowers “come in and bring their statements, paperwork, tax statements and business plan,” said Walter McLaughlin, Senior Vice President at First Heritage Bank. “I look to see if it’s better suited for a regular loan or an SBA loan.”

If the SBA-guaranteed loan is the best way to go, an SBA package is filled out and then awaits approval.

Under the standard processing approach, the lender approves the loan internally subject to SBA authorization, then sends in the packet to the SBA, said Mark Costello, chief of the finance division for SBA’s Seattle District Office.

The SBA then would look at it and decide whether to guarantee the loan. This process takes anywhere from 10 to 20 days, Costello said.

If the lending institution is an SBA Certified Lender, “we strive to give them a quicker turnaround time at the local level,” Costello said. “The presumption is that the quality of the submission is such that we don’t have to do a lot with the deal.”

That turnaround time is cut to about 24 hours if the lender is an SBA Preferred Lender, meaning they have demonstrated expertise with the program and have applied and been accepted into the Preferred Lenders Program, Costello said.

Because of their experience in dealing with SBA programs, Preferred Lenders can approve loans in-house, complete an eligibility checklist and fax it into the processing center, Costello said. If the checklist is properly completed, the SBA will send back a loan number.

“After the loan is approved, there are things they (borrowers) have to provide,” such as additional financial paperwork, said McLaughlin, whose bank became a Preferred Lender in 1990. “(It) takes between two weeks and 30 days for a loan to be processed, subject to appraisal. It’s really an easy process,” he said.

In Girardi’s case, several factors went into the approval of his loan, said Nicole Hill, Assistant Vice President at CityBank, which also is a Preferred Lender.

“His experience in the industry was a big factor,” Hill said, noting Girardi’s former restaurant, Ciao Italia, had been successful. Girardi recently sold that business to his brother. “He did create his own business plan, which we certainly used in his approval process.”

“They really worked with me on the whole process,” Girardi said. “They made it very easy for me.”

And the bank will continue to work with Girardi, offering assistance and advice.

“The bank is protecting their own investment, here, so we’re very involved in the decision process,” Hill said.

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