loosening some cash?

Naples business owner Fred Sahapoglu got a piece of the pie. By “the pie” we mean that multibillion dollar federal stimulus pie. It’s the pie enjoyed by Citigroup (a $25 billion piece of pie) and Bank of America (a $20 billion piece of pie).

Mr. Sahapoglu’s piece was significantly smaller — only $150,000 of the pie — but he’s not complaining. Using Small Business Administration loan money, his remodeling company, Construction Professionals, was able to launch a campaign promoting its new window replacement initiative. The loan is paying off.

“I have two salespeople that are 100 percent booked everyday from job to job to job,” he said. “We did everything, print, TV, radio, Internet.” Along with the advertising campaign, the remodeler helps clients take advantage of government credits for using environmentally friendly windows. Despite the downturn in construction, Mr. Sahapoglu says his 25-year-old company is as healthy as ever.

Since last year, the SBA received Recovery Act money to make it easier for small businesses to borrow money to expand or to simply stay afloat. Weekly loan approvals were up by 87 percent last year and the agency approved $13.6 billion in loans. Earlier this month, the White House approved an extension of breaks that make the loans great deals for those who qualify. There’s already a line of applicants waiting to use that money which runs out at the end of the month. The White House is urging more money go to sweetening SBA offerings for both banks and borrowers. Whether or not that happens is up to Congress. Nevertheless, there’s still pie on the plate, but applying for a piece takes time, knowledge and quite often, a banker who’s willing to serve it.

Hardship loans hard to get

“Lots of exciting things are happing except no one is lending,” says Suzanne Specht, a business analyst with the Small Business Development Center at FGCU. She lists a handful of local banks that offer SBA loans and admits that several clients have had to look outside of Southwest Florida for willing lenders.

The biggest problems are the smaller loans. Created last year, the ARC program under the SBA is intended to give struggling businesses money to pay off debts and stay up and running. While 5,100 loans were approved throughout the country, local bankers, business owners and advisors uniformly call the program a failure.

“The banks didn’t buy into it, it just sat there,” says Greg Bullock who attempted to get a loan last year to keep his North Fort Myers printing company open. He was never approved.

Many banks shied away from the loans for fear that the reporting and bureaucracy involved would not make them worth their while. That’s despite the fact that the loans are 100 percent guaranteed by the government. Struggling business owners who have to show a profit within the past two years also are turned off by criteria and paperwork that make the money seemingly untouchable. The program runs until September.

Booming lending programs

Bankers and borrowers are having better luck with traditional SBA loans that have been granted better terms. In an effort to get banks to start lending, the 7a and 504 programs are now 90 percent guaranteed by the federal government. (They used to be guaranteed from 75 to 85 percent.) Guarantees extend to interest as well as principal. For the borrower, fees associated with the loans have been eliminated. Borrowers who used to have come up with about 3.5 percent of the loan amount currently pay nothing.

“The beauty of the 7a loan is that they can be used for almost anything. I’m working on a loan now for a medical practice that wants to buy a competitor,” says Joseph Ariola with Key Bank, servicing Southwest Florida and Palm Beach. “We’ll take the old debt, the new debt and keep the payments the same.”

Mr. Ariola says he has seen the volume of loan requests soar in recent months and loan approvals have increased by double-digits. Key Bank has carved out a niche in the market as a preferred SBA lender, which means the bank can approve loans in-house without having to forward the paperwork to the federal agency. Non-preferred lenders have an extra layer of approval.

The 504 loan program is also drawing a great deal of interest as Congress considers expanding it to allow the loans be used for refinancing existing property. The move could be especially beneficial to property owners in Southwest Florida, where the commercial market is suffering. The proposed changes would extend the benefits of 90 percent loan guarantees and no fees to business owners who want better terms on their mortgages. Currently, the 504 money is primarily used for new construction.

For the business owner who is savvy enough to find the right lender and complete the application process, SBA terms, which have always been favorable, are now practically unbeatable.

“The SBA allows us to extend more aggressive terms,” says Mr. Ariola. “There are lower interest rates, less restrictions, less money down, longer amortization. For example, an SBA loan for new equipment is usually a 10-year loan. Without the SBA, you’d be lucky to get five.”

Going another route

Nevertheless, for the very small business, the work of finding a loan can be difficult. Many banks, even preferred lenders like Key Bank, do not offer ARC or Microloans, another tool that lends under $35,000. Mr. Bullock never got a piece of the SBA pie for his printing company. Instead, he focused on meat and potatoes. He shed expenses, like discontinuing his membership to chambers of commerce and moving out of the large space he rented. For now, Mr. Bullock, who was soured by the experience, prefers to stay away from loan applications.

Even Mr. Sahapoglu admits he feels he received his loan because his company was in solid shape before applying for the money. Other business owners might not be so lucky.

“Things are tough right now to borrow. I have a credit rating of 800. That helped me,” he said. “I needed the money to expand, but it’s very difficult to get those hardship loans.” 

in the know

A quick look at some SBA loan programs and some proposed changes for Congress to consider. >> ARC Loans: Designed to give viable small businesses facing immediate financial hardship temporary relief. • Up to $35,000 • Used to pay back loans • Interest-free • 100 percent guaranteed by the government • Few banks offer it, considered by many to be an ineffectual and poorly constructed program.

>> 7A Loans: SBA’s primary and most flexible loan program • The most basic and commonly used loan. • Loan maturity up to 10 years for working capital • Loan maturity up to 25 years for fixed assets. • Currently guaranteed at 90 percent.

• A proposal would increase cap from $2 million to $5 million

>> 504 Loans: Brick and mortar financing to acquire major fixed assets. • Cannot be used for working capital or inventory. • Proposal to increase cap from $2 million to $5 million for regular projects. • Proposal to increase cap from $4 million to $5.5 million for manufacturing. • Currently guaranteed at 90 percent. • Proposal to allow the loan be used for refinancing.

>> Microloan: Small, short-term loans to small businesses and nonprofit child-care centers. • The maximum loan amount is $35,000. • The average loan is about $13,000. • Used for working capital or the purchase of inventory • Cannot be used to pay existing debts or to purchase real estate. • Proposal to increase cap to $50,000.