Which loan programs are best suited for growth?
Small business owners have many programs to choose from, but these loans are popular for expansion or growth.
- SBA loans. Owners who want to purchase an office building or plant or acquire another business usually opt for an SBA loan because they offer prime rates and borrowers can make a down payment of 10 percent to 15 percent and pay off the balance over a 10-year period. Each lender has different underwriting criteria and capacity, so be sure to call a number of institutions.
- C & I loans. Commercial and industrial loans provide lines of credit from $3 million to $10 million and are frequently used by manufacturers and wholesalers to extend their global reach, open new vertical markets or expand product lines. If you have a relationship with a bank, deposits on account and a track record of timely debt repayment, they should offer you very aggressive pricing. If not, use your power to shop the market.
- Construction loans. Construction of warehouses, office buildings and shopping centers is starting to pick up and debt service starts when the project is completed, which will likely be 2012 when the economy is expected to improve. Loan officers are eager to grant construction loans because they’re allowed to consider future economic conditions during the underwriting process.
Are some loans easier to secure in a tight credit market?
The current climate makes it difficult for owners to secure funding if their business is unprofitable or experiencing cash flow problems, but any loan that is low risk, guaranteed by the government or secured by assets will be easier to obtain. For example, trade finance loans, which are used to finance transactions between importers and exporters are almost risk-free, yet demand for this product has waned, so borrowers have the upper hand and can drive a great deal. The SBA’s Export Working Capital Program (EWCP), which provides short-term working capital to exporters, is favored by lenders because the government guarantees 90 percent of balances from $300,000 to $5 million. When owners want to capitalize on an emerging opportunity, they often select an asset-based loan (ABL) which is secured by real property, accounts receivable, equipment or finished inventory. ABLs offer a speedy underwriting process that doesn’t focus on the applicant’s creditworthiness.
What else should owners know about the current lending process?
Lenders have been bombarded by calls from small business owners, but given the lackluster economy, they can only entertain requests from qualified borrowers. Grab their attention by describing your company’s 2010 financial results and providing a copy of your tax return. Next, provide a copy of your business resume and be prepared to conduct a line-item review of your company’s financial statements. Bolster your case by describing any non-recurring expenses that can be added back to boost cash flow or by offering data that illustrates industry cycles or projected growth. As long as you can repay the loan — go for it. 2011 offers the perfect lending climate to expand your small business.
Sung Soo Han is the executive vice president and chief loan officer for Wilshire State Bank. Reach him at (213) 427-6595 or [email protected].