January 15, 2009

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Kelly King Anderson was pregnant with her third child, and exhausted. She had...Read More

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Article

A Bright Spot

SBA Loans Viable In Good Times and Bad

Janine S. Creager

January 15, 2009

In the late 1990s, Tom Mansell was increasingly dissatisfied with working for someone else and watching, as he says, “the boss get rich.” That’s when he and his then-wife and partner, Linda, decided to leave city living and open a bed and breakfast. They looked at inns in 35 states only to land in Escalante, Utah, on the edge of Grand Staircase National Monument. “When [President Bill] Clinton made the monument [in 1996], we camped out, looked at the land and said, ‘If this takes off, we’re on the ground floor,’” says Mansell. But dreams, however wonderful, don’t come free. Though they were able to buy a small home with Linda’s cashed-in retirement savings, it wasn’t long before they decided to add a second building with additional rooms. That’s when they applied for a Small Business Administrative (SBA) loan. That decision, along with a second SBA loan several years later, totaling upwards of half a million dollars, has allowed Mansell to expand the Escalante’s Grand Staircase Bed and Breakfast Inn from its initial two rooms located within the home itself, to eight rooms housed in two separate buildings. In order to qualify for the initial loan, the Mansells, like all other SBA applicants, had to provide proof of their own financial credibility, as well as a realistic business plan including anticipated debits and credits. “We are going to be looking at their business plan, we’re going to look at their management, certainly collateral, how are they going to repay their loan, and their marketing information,” Stan Nakano, Utah District director for the U.S. Small Business Administration (SBA) says. “At the end of the day, the lender is going to be betting on the industry, and [assessing if these individuals] can really pay back these loans and how are they going to do it.” The SBA was created as an independent agency of the federal government in 1953 to offer resources to assist small businesses. While the SBA does not make loans itself, it does guarantee the bank or credit union extending the funds that the loan will be repaid. In the last fiscal year, which ended September 30, 2008, the SBA in Utah approved more than 3,000 loans totaling more than $420 million, with individual loans ranging from $4,000 to $4 million. The SBA offers numerous loan programs: the Basic 7(a) Loan Guaranty can be used for most business needs such as working capital, machinery, furniture, land and building and debt refinancing; the 504 Loan Program, the Certified Development Company (CDC) provides long-term, fixed-rate financing to businesses to acquire real estate, or machinery or equipment to expand an existing business; and the Microloan, a 7(m) Loan Program which provides short-term loans of up to $35,000. Each loan has its specific requirements and limitations to fit the particular needs of small businesses. In spite of the ups and downs of the economy in recent months, SBA loans are still a popular and viable option for Utah businesses. “In our case, we have a very committed and strong lending community,” says Nakano. “[Unlike most states], not only do we have banks participating, we also have credit unions. I think that’s one of the biggest reasons we have fared better.” Curtis Anderson, vice president of business and SBA lending for Mountain America Credit Union (MACU) says that now is a great time to utilize an SBA loan, because it can let lenders eliminate some of the risk. “In these times, I’d say we’re a little more conservative, but we’re still lending,” he says, but adds that business owners are definitely more cautious these days, with many focusing more on consolidating current debt rather than taking on more. “I would tell people that you still need to work through a good business plan and make sure that all the numbers work out, keep your credit score strong and good, and be optimistic that this free market system works,” he says. While Tom Mansell is pleased with what he has been able to accomplish with the loans he received, it took plenty of hard work, determination and contacting numerous financial institutions to make that happen. “Be realistic; be persistent in what you do,” he advises. “Keep on trying; there will be someone out there who will believe in you. Once you establish yourself with credit [you’re able to do it]. Then the sky is the limit.”
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