Q: I’ve always believed that expanding my business is a bet on the future. We’ve added
onto our building and equipment twice in 12 years and everything has worked out. Now, I want to expand again but my bank is
more hesitant. (My old loan officer is no longer with the bank, so I’m basically starting from scratch in this relationship.)
I keep hearing about the federal stimulus package and I wonder if there is anything in it that would help a small
business like mine.
A: Yes. The stimulus package allocated $375 million to the U.S. Small
Business Administration so it could offer more generous terms to small-business borrowers.
The SBA has rolled out
enhancements to its 504 and 7(a) loan programs for three straight months. The latest, in late June, allows small companies
planning an expansion—this sounds like your business—to refinance existing eligible debt through the SBA 504 loan
program. The amount being refinanced must be 50 percent or less of the total cost of the expansion, and the debt must be related
to other fixed assets of the company.
The usual 504 criteria also apply: Projects must involve acquiring or improving
land, buying or constructing a building, or purchasing new equipment. The refinancing option is a permanent addition to the
Until the end of the year, there is time to take advantage of another sweetener: The SBA is using
part of the stimulus money to pay two fees associated with its lending programs. In the case of the 504 program, this eliminates
the 1-percent processing fee paid by the borrower and a 0.5-percent fee paid by the participating lender, which was often
passed through to the borrower.
To put this in perspective, a borrower who finances a $1 million building will
save $8,500 while these fee reductions are in place. The SBA also has eliminated the fees in the SBA 7(a) program, which generally
ranged from 2 percent to 3.75 percent of the guaranteed portion of the loan.
Other inducements are available to
companies that save energy, such as higher ceilings for SBA 504 borrowers that “go green.” You can borrow up to
$4 million if your company can buy, build or retrofit facilities that result in 10-percent energy savings. The maximum 504
loan is still $1.5 million for 504 borrowers that cannot demonstrate energy savings, but even that amount may be stretched
by using one of the other new 504 enhancements.
The goal of these and other programs is to inject capital into
small businesses, the segment of the economy responsible for 70 percent of all jobs. The stimulus may be working; the SBA
announced that participation in its lending programs is up more than 40 percent compared to the weeks just before the American
Recovery and Reinvestment Act’s being signed.
You should ask your banker to investigate the new terms offered
by the 504, 7(a) and other alternative business loan programs to see if you could qualify. If you do, you will benefit from
higher loan ceilings, reduced fees, better refinancing options—or all three.
is president of Cambridge Capital Management Corp., which operates several alternative financing funds. She can be reached