Gregory Gould | Vice President and SBA Manager, Webster Bank
Are you looking to unlock new doors to opportunity in the coming year? Look closer at everything an SBA loan can bring to the table. The SBA loan guarantee program makes access to capital possible for entrepreneurs who might otherwise struggle to obtain a business loan. They’re willing to underwrite loans that aren’t fully collateralized, so that entrepreneurs can find reasonable rates and terms. Today, the SBA has also streamlined the loan application process, making it even easier to capitalize on promising new ventures.
1. Acquiring a business?
We’ve seen a steady trend in acquisitions, especially as baby boomers retire. They want to leave their enterprise in good hands. They may sell to a long-time employee or even a vendor who knows the business and will work hard to sustain its success.
Thanks to new SBA policies, qualifying businesses now need only a 10% equity injection for start-ups or acquisitions—not 25%. In some scenarios (business expansion, for example), there may not be a down payment required at all.
An SBA 7A term loan is a popular solution for acquisitions. It can offer a 10-year repayment period—that’s longer than conventional bank loans of three to five years. As a result, the business owner may be able to reduce monthly loan payments, easing the pressure on cash flow.
Note that an acquisition is almost always considered a new business; even though the business may have been operating for a while, the borrower is a new entrepreneur.
2. Ever considered exporting?
Exporting is an untapped opportunity with huge potential—especially when you consider that the overwhelming majority of sales occur outside the U.S. In fact, America’s share of the e-commerce market is projected to decrease to 16.9% of the total global e-retail market in 2020.
The SBA’s export program is designed to change that game: It will underwrite working capital loans with a 90% guarantee. What’s more, the SBA helps where banks usually won’t: They’ll lend against foreign receivables as collateral, making access to capital far easier.
Why aren’t more businesses getting on board? Often, owners don’t know one key fact: You don’t need to do the exporting yourself to qualify for the SBA program. If you make a component for a product sold overseas—the clicker for a ball-point pen, for example—you may be eligible.
3. Looking into a franchise?
If your 2020 goals include starting a business—but not starting from scratch—consider a franchise. They offer a structured system with a proven track record.
An SBA loan can help an entrepreneur get started, especially because the SBA looks beyond collateral in evaluating the risk. Unlike a conventional bank loan, the SBA guaranty mitigates the risk of a start-up, where there may not be a proven track record and customer base. By taking into account the owner’s experience the SBA can demonstrate greater flexibility: It can approve loans to borrowers who may not typically qualify for the necessary capital under traditional bank policies.
A top client question: What’s ahead for the economy?
Because 2020 promises to be a year of political turmoil, business owners are naturally worried about the impact of volatility on their plans, notes Forbes. While the daily headlines may be nerve-wracking, remember that the fundamentals of our economy are strong: According to the Labor Department December jobs report, wages are rising and unemployment is falling.
Of course, any new business venture requires a leap of faith. Nevertheless, this may be a good time to take a well-calculated risk to start or expand your business.
Find an advisor who will refine your plans, not define them.
That’s how you improve the chances for that well-calculated risk. It’s critical to have an objective advisor who’ll listen carefully to your plans and evaluate them without prejudice. The right advisor will build on your possibilities, not force-fit you into preconceived structures.
When you approach a lender, have a well-organized business plan. State how much money you need and how you’ll spend it. Include your projections and, for family businesses, your succession plan. (If you need guidance to draft a business plan, you can get free and expert help from groups such as SCORE, the Women’s Small Business Development Center, or your local Small Business Development Center.)
Build a relationship with your lender that enables trust and transparency. That way, if you encounter bumps in the road to success, your advisor can recommend solutions you may not know about.
At Webster, that’s our approach: While other lenders may have run away from their clients when business slows down, we’ve always run towards ours—bringing options to assist in easing the financial stresses on their business.
As a Preferred SBA lender, we’re able to approve loan applications in-house, without having to go to the SBA. Since time is money, this extra efficiency can be golden.
That’s part of the reason we’ve become the #1 SBA lender by total 7(a) dollar volume in New England.
All loans and credit products, pricing and overdraft protection are subject to the normal credit approval process. Some applications may require further consideration and/or supplemental information. Certain terms and conditions may apply. SBA guaranteed products may also be subject to additional terms, conditions and fees.
The opinions and views in this blog post are those of the authors, and are not intended to provide specific advice or recommendations for any individual. All loans are subject to the normal credit approval process.
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