Your Local SBA

FINANCING: SECURING CAPITAL IN A CREDIT CRUNCH
SBA Loan Programs
The down economy creates challenges in credit markets that affect not just Wall Street, but also Main Street and the small businesses on your street. Working through participating lending partners, SBA has loan programs that can help small businesses get access to the capital they need. Because of the SBA-backed guaranty, lenders can provide capital to small firms with considerably less risk to themselves. For more information, see the SBA's financing site and the South Carolina District Office's financing Web page. For a list of participating lenders currently active in South Carolina, call our district office at 803-765-5377.

Critical Steps to Securing Small Business Financing
Excerpted from "Five Critical Steps to Securing Small Business Financing" by SBA's Colorado District Director Greg Lopez

  • Borrowers must be credit worthy. Small businesses must avoid depleting their current liquidity (see Financial Advice) ... They must immediately deal with negative financial issues, including poor or niaccurate credit reports, and must resolve all business and personal tax issues. A negative credit report and/or credit score can be a "deal buster." Back taxes, liens ... [and] multiple bounced checks all show increased risk for a lender ... Address all of these issues prior to applying for the business loan.
  • Immediately develop a stronger business plan. The blue ribbon panel of lenders stressed that a business plan must be well thought-out and realistic. [Note: Colorado District Director Greg Lopez had convened a panel of 12 commercial lenders in late 2008 to provide advice for small businesses seeking credit.] The business plan should outline the money, management and marketing of a small business. One lender stated, "I need to understand that you understand what you are getting into." Borrowers must explain how the money will be used and how it will be repaid. Repayment ability is the critical factor. Without repayment ability, no lender will make the business loan.
  • Plan for the worst case scenario. All lender require borrowere to provide a minimum of 12 months of financial projections. These projections should be broken down into a month-by-month format ... All lenders agree that the projections must be presented with a best case, mid-case and worst case scenario. How will the business survive if revenues nosedive by 10, 20 or 30 percent over the next six to 12 months? ... This "hands-on" forecasting will help the borrower become more strategic in [his or her] thinking and help the lender feel more comfortable with repayment ability.

 

Other forms of financing

  • "Look for local funding," says the national SCORE organization, Counselors to America's Small Business. "Contact your city, county or state governments... Sometimes there are programs with grants or loans in specific industries. Many economic development offices have programs for qualified small firms. Community banks may also be a source of a line of credit."
  • Consider looking for investors, says Cindy Weathers, founder of Park Place Children's Center, an SBA success story. "With the current economic crisis, investing in [a] business seems a lot safer than investing in stocks."
  • "It's [more difficult now] to qualify for [a small business loan] unless you have plenty of collateral and/or can structure a deal involving real estate. Cash flow financing may be the only option," says Eva Dobrowolski of the South Carolina Women's Business Center.
    "[Cash flow financing] is best suited for manufacturing and service companies. Receivables, inventory and cash flow financing can be done without the collateral and is based on the discounted value of those assets. It's risky (from the lender's perspective) and usually commands higher interest rates. Still, some businesses are happy to use this kind of financing, at least in the short term.
    "The lenders who specialize in this kind of financing are usually not the banks, and they used to have a bad reputation ... I would not have recommended them in the past, when there were better options, but now I occasionally do.