SBA Loans Provide Alternative Funding Options to Fuel Local Business Growth

Matthew J. Chrome, Senior Vice President, Chief Credit Officer, at OSB shares how SBA loans can help local small businesses grow, as we recognize National Small Business Week.

Over the course of my 20-plus years in banking, I have found that when working with small businesses, it is often necessary to look beyond conventional commercial loans in order to help fund their growth. The government’s Small Business Administration loans are often an ideal option that a community bank like OSB can access for its small business customers.

I recall two particularly poignant examples of using SBA loans to fund small business clients—one at the beginning of my career and one not too long ago.

In the first example, I learned about the power of SBA loans as I worked with a more senior lender who was trying to structure a loan for a minority-owned, fledgling business to buy or build a new building for their headquarters.  The business had some warts in its financial statements, including friendly debt and stagnant lines of credit. These are things that are commonly found with small, growing businesses. By looking outside of traditional lending options, this commercial lender found opportunity in the SBA 504 program.

The bank took on 90 percent of the construction loan to build the new headquarters, and the Economic Development Corporation took on 40 percent of the end loan exposure, leaving the bank with a 50 percent advance on the end loan. This alternative funding option gave a small, cash-strapped (but growing) business the money it needed to build a new headquarters—and the company is still performing well, 21 years later.

More recently, I was able to structure a series of SBA loans to support a prominent, growing restaurant business that wanted to expand further. The business has a track record of sufficient cash flow and is a consistent supporter of the community, but it does not have the collateral needed to support a conventional commercial loan with the bank.  Their significant shortage of collateral would normally stop the commercial loan process, but the SBA 7A loan program provided a government guarantee to the bank, in case of loan default, encouraging the bank to make the loan.

For small, growing businesses, having access to capital can make all the difference when it comes to achieving the next level of success. However, many businesses may have sufficient cash flow, but not enough collateral to qualify for traditional commercial loans. Or, they may have had some debt issues or some past financial misfortune that puts a blemish on their financial records. This can leave them limited in their ability to move ahead—unless they work with a lender who can offer some non-traditional financing options, like SBA loans.

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