This week’s guest blog comes from Ron Raport, Columbia Bank.
I recently attended the 2012 Seattle SBA’s Annual Gala Awards night. It was a wonderful time to see some small business owners receive well-deserved recognition. The event was well attended and I had the pleasure of seeing many old friends at the dinner. I began my lending career at the Seattle SBA offices as a loan officer and I later managed the SBA lending program for one of the state’s larger SBA lenders. I had the pleasure of getting to know a lot of great people during that time.
My career path has since gravitated toward mainstream business banking and I have not specialized in SBA lending for a long time now but SBA lending remains one of my valued tools for meeting my clients’ needs when appropriate. How so? Looking back, here are a few examples from my own experiences…
The Big Leap – A high-tech client developed a state of the art product with potential to open new markets around the world and drive huge sales increases. But the product required substantial up-front expenditures to bring it to market including marketing and custom engineering to fit the product within electronics products sold by OEM manufacturers in the US, Asia and Europe. From a banking standpoint, there was insufficient collateral and equity capital to support a working capital loan of the amount needed, especially since accounts receivable would not be generated until 9-12 months after the initiative was begun. An SBA loan was provided, the product was successfully launched, revenues and income grew and the loan was repaid on schedule.
The Damaged Balance Sheet – I met a manufacturer of specialty environmental monitoring equipment which was getting their financing from a “non-bank” lending source. They had miscalculated on an expansion into a new geographic market a few years earlier. They pulled back and settled back into their proven market and client base. But the damage was done and they were no longer enjoying reasonable financing from their former bank. Although their balance sheet was no longer within “normal banking range” their core business had survived intact and was producing enough cash flow to support an SBA refinancing. We used the SBA program to restructure their business debts and put them back into a lower-cost, healthier financing arrangement.
Business Buyers Without Deep Pockets – When the founding owner of a successful company is ready to retire how do they find the right buyer and how does that buyer come up with enough money to pay a fair price? Often, the right buyer or buyers are currently working for the business. Those key employees have the skills and experience to run the business, but they won’t have the savings or collateral to borrow enough to fund the purchase. Cheers for the SBA loan program which can push beyond collateral limitations and which provides longer terms (ie…lower loan payments) to make the sale possible. The buyers will still need a certain equity stake of their own, and often the seller carries some of the financing, but the deal gets done when it could not have been done otherwise. I really enjoy that type of lending.
Do We Lend To That Industry? – Certain industries are higher risk. But some of the coolest people run those companies. SBA lending has given me the opportunity to help some businesses that were out of reach otherwise. When the company is doing well and I see the owners enjoying their success, I smile.
I offer these examples as a reminder of the value of the SBA loan program. I keep it in my lending tool-kit. It does not fit every need. It costs more than standard bank financing. It can feel like a pain to go through the process. But in the right situation it can make all the difference. Thank you SBA for helping me to help my clients.