Small business: Landing an SBA loan

Financing is tight these days and lenders are still leery, particularly of startups.

In many cases a lender will want added reassurance before issuing a loan, and that's what makes the Small Business Administration's loan programs so appealing. These government-backed loans have up to an 85 percent guarantee, depending on the loan amount, meaning the government will pay the lender if the borrower defaults.

Still, don't expect a lender to just hand you an SBA loan. The burden of proof still rests on you to demonstrate your business is creditworthy, say experts.

"There's no free money," says Walter Oden, who heads the SBA office on Long Island. "Your business has to be bankable."

While backed by the SBA, these loans are not directly provided by the SBA. They're issued through traditional banks and other SBA-approved lending institutions, he notes.

With that said, a lender must be able to see that you can pay the money back and that you have a solid business proposal, says Oden, who recommends businesses do some homework before approaching a lender.

The SBA website (sba.gov) is a good place to familiarize yourself with its loan programs including the popular 7(a) and 504 programs, Oden said. Other resources he recommends include the Small Business Development Centers at Farmingdale State College and Stony Brook University.

To start, you should have a solid business plan or financing proposal. If you're an existing business, you want to show that your business has the cash flow ability to repay the loan, says Roslyn Goldmacher, president of the Long Island Development Corp. in Westbury, which advises small businesses and lenders on SBA loans. Be prepared to show at least three years' worth of prior financial statements or federal tax returns, she notes.

Alternatively, if you're a start-up, you need to have solid financial projections -- for at least two years, she notes. You'll also need to provide a personal financial statement of anyone owning 20 percent or more of the company, and a company description of proceeds, says Goldmacher.

If you've had blemishes in your financial history, come prepared to explain "here's what happened, and here's what we've done to rectify it," says Charles Green, author of "The SBA Loan Book" (Adams Media; $15.95) and executive director of the Small Business Finance Institute in Atlanta.

"They need to be able to narrate the lender through their financial history," says Green, adding they also need a clear understanding of how much they need and be able to justify it. "Don't let a lender chip away at what you need because they don't think you need it," he notes.

Presenting a solid plan will help justify your case, says Marianne Garvin, president of the Community Development Corp. of Long Island, in Centereach, which provides 7(a) and SBA micro-loan programs. Be prepared to go beyond the technical aspects of your products or services, and be able to show a clear understanding of the "business of the business" (i.e., accounting, etc.), advises Garvin.

Don't expect the lender to provide funds without any investment on your part, adds Garvin, noting some lenders could look for as much as 50 percent of your own equity in the business especially for start-ups.

The CDC will want a written personal guarantee that they will repay the loan from the borrower and will often require one from the spouse as well, she notes. "They have to make sure you're not going to default on the loan," says Michael White of WhiteMedia.com, a Huntington Web and mobile-app design and development firm that recently secured a $25,000 micro-loan through the CDC.

He provided a business plan, detailed financials and a client roster. "You need to show some money in the bank," he said. "They don't just lend to anybody."

Fast facts

Local SBA loan activity

Nassau:

$31M (10/1/09 to 3/31/10)

$47.3M (10/1/10 to 3/31/11)

Suffolk:

$32M (10/1/09 to 3/31/10)

$65.3M (10/1/10 to 3/31/11)

Source: SBA, latest available.