Here is the news that all vetrepreneurs are looking for. Access to credit is critical to business success. Currently it seems to opening up. Read on for more info.
Small-business owners getting easier access to credit
By Christine Hall, Contributing Writer at Atlanta Business Chronicle
Robbie McDaniel was close to shutting down his large-format graphics business a few years ago because he could not get financing. He was able to secure financing about five months ago, which has allowed him to expand.
Meanwhile, Tricia Dempsey, founder and CEO of IT staffing company Agile found financing easily, but works to keep that balance between debt and equity to keep growth in check and banks lending.
When it comes to financing, small businesses have many options out there: big banks, community banks, the Small Business Administration and alternative lending like Invest Atlanta. The experts say one isn’t better than the other, it just depends on the business owners’ situation, and what they are looking to accomplish.
One of the first steps is to develop a relationship with a bank, Lonnie Saboor, manager of small business finance for Invest Atlanta, said.
If the company is a startup, it may be difficult to get conventional loan, so have access to equity funds. Established businesses may have it easier, but if the business struggles as a result of the economic downturn, it will be a challenge until the owners show how they will service the debt, he added.
For McDaniel’s company, PSP, which services retail, grocery stores and quick-serve restaurants, it needed to get back on its feet in 2008 and 2009. However, he soon realized his bank was having its own issues, and his line of credit was canceled and converted into a term loan.
“Instead of an annual renewal, it was now a quarterly renewal, and they raised the interest rate each time,” he said. “Finally, they said they wouldn’t renew it.”
Rather than find a new bank right away, he took the advice of several people to “hunker down and tough it out” until PSP got back on its feet.
By 2012, PSP was doing better financially again, so last year, McDaniel began the search for a new bank. At the time, the company was 12 years old and with the same bank for 11 years.
In the course of interviewing banks, he even asked his current bank for a line of credit but was declined.
“So we took the other small loans we had and moved them to the new bank, which cut our interest rate almost in half,” McDaniel said. “That freed up cash flow, and they gave us four times the line of credit amount we had asked our former bank for.”
Waiting it out also got Dempsey to her true line of credit that Agile, founded in 2003, could grow with. The key was keeping up the right ratio of debt and equity, Dempsey said.
Another is having a banker that understands the business, lots of proactive communication and the sharing of good news from both sides, she said.
Agile grew 30 percent during the economic downturn, a fact Dempsey continued to repeat soher banker knew she needed that line of credit.
Last year, Agile got a 10-year line of credit, however, Dempsey has found that growth can be limiting to a company, especially when the bank doesn’t think the growth is positive.
- “Everyone wants to grow and growing is awesome, but it is also hard,” she said. “I can make the decision to employ 10 people tomorrow, but if I want to stay in my ratio, I can’t do it. If I invest too much too fast, it throws everything off.”
One of the big complaints from small-business owners a few years ago was how tight the credit market was, but those on the other side of lending say it is better now.
Though business lending is not where it was between 2005 and 2008, lending conditions have continued to improve, Terri Denison, Georgia district director of the SBA, said.
Everyone has to look at what is the new normal and figure out where to go from there, Denison added.
If interested in obtaining a loan, she recommends starting with the owner’s current lender as well as be open to a variety of lenders, such as microlenders. In addition, take advantage of resources such as SCORE, the Small Business Development Centers and the women business centers.
“You need to know how much you need, and what you will use it for,” Denison said.
However, there is still uncertainty in the economy, driving more owners to think short-term loans or no loan at all, said Sean Mabey, small business director for the Southeast at Wells Fargo. Instead, they are relying on other methods, including personal savings.
“Depending where they are in their financial cycle, they may have money on the side and also a credit card or line of credit,” he said. “The important part is that they have the option to do both. Credit isn’t a dirty word, but should be part of a bigger cash flow plan.”
Meanwhile, PSP’s experience has taught McDaniel to not rely solely on banks, but to also save up so he could be his own line of credit. He is within six months of his saving goal, and he keeps that money in a separate bank from his loan.
“I learned to create banking relationships with more than one bank, so if anything ever changes, I have my rainy day fund and that relationship intact,” he said.
Invest Atlanta loan programs
- Business Improvement Loan Fund- designed to encourage the revitalization of targeted business districts in the city of Atlanta and to support commercial and industrial development in other eligible areas. The maximum loan amount is $50,000.
- Phoenix Loan Fund- provides financial assistance for the construction or renovation of privately owned commercial buildings; equipment purchases needed to operate a business; and, in some cases, working capital. The loans are between $10,000 and $100,000 at a rate below prime.
- Opportunity Loan Fund- provides “gap” financing of between $100,000 and $200,000 to assist small and midsized businesses that create at least five new jobs in the city.
- Empowerment Zone Loan Fund– companies are eligible to receive between $25,000 and $50,000 for expansion or renovation that leads to job creation.
- Atlanta Catalyst Loan Fund- a total of $250,000 is available for loans to qualified businesses in New Markets Tax Credits eligible low-income census tracts.
Source: Invest Atlanta
SBA loan programs
- 7(a) loan program- provides up to $5 million for business-related uses including acquisition of equipment, furniture, working capital, commercial real estate or refinancing.
- Microloan program- provides up to $50,000 to help small businesses and certain not-for-profit child-care centers start up and expand.
- CDC/504 loan program- focuses on commercial real estate, long-life production equipment and job creation. Depending on the need, loans range from up to $4 million or $5 million. It also allows longer terms for repayment – 10 or 20 years.