Access to capital for small businesses

Building and growing a small business is a defining tradition in America. In today’s economic environment, accessing capital to do this has become increasingly difficult. Banks are facing unprecedented challenges due to the economic malaise that has stricken our country and, closer to home, our communities.
    Banks are hearing two messages from regulators and the Administration: help stimulate the economy by deploying capital into the hands of small businesses and increase credit quality. Balancing these two directives is a daunting challenge.
    However, the U.S. Small Business Administration provides banks an excellent lending vehicle to facilitate the deployment of capital to our local small businesses. The American Recovery and Reinvestment Act of 2009 (ACT) provides enhancements to the SBA loan programs that benefit small business owners in addition to the many other stimulus provisions of the ACT.
    The government has identified small business as a vital engine that must be well oiled and fueled to continue playing the critical role in our economy that has defined small business.
    The definition of a small business varies by industry, but roughly 95% of all small businesses qualify as small per SBA regulations. Small businesses are responsible for 70% of all new jobs over the past decade, according to the SBA. We all know that big businesses in Sonoma County are currently cutting jobs and contributing to the overall increase in unemployment. Hard-working entrepreneurs are creating jobs one by one and have historically fueled the creation of new industries and companies. Big companies begin with little ideas by individuals who take the initiative to pursue the American Dream and create the kind of innovation and advancement crucial to our continued success as a leader in the free world.
    Specifically, the ACT eliminates most all SBA loan fees to small business owners on the SBA 7a and 504 loan programs. On a $2MM SBA 7a loan, a borrower will save $52,000 due to the elimination of the SBA guaranty fee. These are dollars the small business owner will retain to bolster working capital, an ever-increasing need for small business owners positioning themselves for long-term viability in a weakened economy.
    Additionally, the ACT provides for a loan guaranty up to 90% of the loan amount, up from a 75% guaranty. While banks are charged with increasing credit quality, this increased guaranty provides added security for banks that are lending through the SBA 7a loan program and can mean the difference between an approval and a decline.
    The ACT also eliminates most of the SBA borrower fees associated with the SBA 504 loan program. The 504 loan program is used primarily for the acquisition or construction of commercial real estate. The SBA 7a loan program can be used for inventory, working capital, equipment and the construction, refinance or purchase of commercial real estate that is occupied at least 51% by the small business.
    It is important to understand that although the SBA loan programs promote lending by banks and provide further enhancements via the ACT, a small business must still meet underwriting criteria of a bank. A business must be viable, must have a plan for long-term success and must demonstrate management experience sufficient to manage the company. While a bank may rely on the guaranty to mitigate potential losses should a small business fail, the bank is charged with engaging in prudent lending practices that do not put tax dollars at risk. The SBA loan programs are, after all, funded by the government and traditionally by fees paid by participating banks and small businesses. With the elimination of SBA fees, more of the cost of the program will be borne by the government until the funds allocated through the ACT are exhausted. Banks are mindful of their responsibility.
    The SBA enhancements provide a much-needed stimulus to small business lending in communities across the country, and they help banks achieve their mission of deploying capital. The SBA was established in 1953 to provide financing for small businesses that have difficulty accessing capital through conventional financing loan programs. The SBA has been a dynamic program that can be enhanced or adjusted to insure that the program is effectively meeting its objectives.
    When a small business owner considers a bank for its lending and deposit relationships, he or she should choose to forge a banking relationship with a bank that can meet its needs in good times and bad times. You want a bank that is attuned to your needs and can deliver expertly the products and services that help you succeed. The SBA loan programs are only one product that Sonoma Bank delivers.
    Now more than ever you need to choose a banking partner that has the expertise and flexibility to meet your needs regardless of the economic environment.
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    Sherrill J. Stockton, SRVP is the SBA/CRE Director of Sonoma Bank where she has been for the past 10 years.
  Sherrill currently serves on the Technical Issues Committee and Region X Liaison Committee of the National Association of Government Guaranteed Lenders (NAGGL). She currently serves as board chair of the Family Services Agency and is also a member of the North Bay American Heart Association.
  She can be contacted at (707) 579-0610 Sherrill.Stockton@SterlingSavings.com.