BANKING – Ready and willing – SBA loans play key role in business funding

Posted on Dec 7, 2012 :: Banking , Insight On
Posted by , Insight on Business Staff Writer

If you’re in the right industry and have a solid business plan in place, finding financing to cover expansion plans is a bit easier than it was a couple of years ago.

Experts with financial institutions throughout the New North say more small- and medium-sized businesses are having success when it comes to securing loans through the Small Business Administration (SBA). The federal loan program, which is administered by local banks or certified development companies, provides crucial funding to get help businesses that might otherwise be unable to get a traditional business loan, says Wenda Roycraft, senior vice president with First National Bank-Fox Valley.

“SBA loans are just one of the pieces in our toolkit to help businesses,” she says. “They play a vital role in helping businesses looking to expand.”

The majority of SBA loans awarded fall into the 7-A category and can be used to purchase equipment and buildings or fund a construction project. With the SBA willing to cover up to 90 percent of the loan if the borrower fails to make payments, more financial institutions are willing to work with businesses.

From April through October in Wisconsin, the SBA provided funding for 1,405 loans for a total of $468 million.

“The SBA had its best two years ever in fiscal 2011 and 2012 nationwide when it comes to awarding funding,” says Jeff Sheffler, government guaranteed lending program manager for Associated Bank. “The SBA has made a lot of changes designed to get money in the hands of business owners. They’re really trying to work with lenders to make their programs better.”

While SBA loans can be used for funding in any business sector, manufacturing definitely leads the way in northeast Wisconsin, says Michael Vogel, vice president of commercial banking with Nicolet National Bank. He says manufacturers are growing and have tangible assets to use as collateral – two factors lenders like to see in its borrowers.

“We’ve been pretty active with SBA loans. The process has been streamlined in recent years, which gives us an opportunity to make more loans and leads to economic growth,” Vogel says.

If a financial institution is designated as a preferred SBA lender, it can make the decision on granting the loan based on preset national criteria. If the financial institution is not a preferred SBA lender, it then works through a certified development company like Great Lakes Asset Corp. in Green Bay to get the loan done.

Great Lakes Asset Corp. saw borrowing increase last fiscal year and this fiscal year is also going well, says executive director Cindy Esterling. “There is a lot of demand right now, especially in manufacturing, which is good, since that helps drive jobs in other industries, too,” she says.

Sheffler says business owners sometimes don’t realize they qualify for an SBA loan. “People think it’s only for a certain industry or sector, but service providers and professional firms can get them just as well as manufacturers and retailers. And don’t be taken aback by the word ‘small.’ Some manufacturers have 500 employees and are still eligible. The key is to find a lender who knows the programs and can work with you to get the funding you need,” he says. “Most people don’t come in asking for a government-backed loan. They just want more credit and it’s up to the banker to work with them on finding a program that best fits their needs.”

Regulations, however, dictate a great deal about who qualifies for an SBA loan and who doesn’t, says Peter Prickett, CEO of First National Bank-Fox Valley, which was recognized by the SBA as the top lender in its class for the 2011 federal fiscal year.

“They have a formula set up and you need to fit within it. A lot of our judgment has been taken away,” he says. “It used to be that if the economics didn’t look good, but you knew the person or the local situation, you could still go ahead and rely on your opinion to make that loan. There are deals that I can’t make today that I used to be able to make.”

Borrowing became tougher across the board following the 2008 financial meltdown. In 2010 as part of the Small Business Jobs Act of 2010, the SBA increased its limits for loans from $2 million to $5 million.

Many small business owners and entrepreneurs think that getting funding will be too difficult so some don’t even approach a bank, Prickett says. “Our demand is down in 2012 compared to 2011. I don’t know if fewer people are planning business expansions or starting a business up or if there was just a lot of pent-up demand that led to the higher 2011 numbers,” he says.

Sheffler agrees many business owners are taking a wait-and-see approach right now. “The general economic conditions are keeping some businesses on the sidelines and I also think many are waiting to see how things unfold after the elections and how that will impact business costs,” he says.

Financing businesses

The Small Business Administration (SBA) provides funding to small- and medium-sized businesses through two programs: 7-A loans and the 504 program. From the SBA website:

» 7-A loans can be used to purchase land or buildings; costs related to new construction; purchase of machines, supplies and materials; provide long-term working capital; provide short-term working capital needs; and purchase an existing business.

» The 504 loan program provides small businesses with long-term, fixed-rated financing used to acquire fixed assets for business expansion or modernization. The 504 loans are made available through certified development companies.

In Wisconsin, First Bank Financial Centre of Oconomowoc is the top provider of 7-A loans so far in 2012, making 169 loans worth $62,588,300. Other top loan providers include Community Bank & Trust of Sheboygan with 74 loans worth $41,135,800; Ridgestone Bank of Brookfield with 25 loans worth $22,890,000; Associated Bank of Green Bay with 176 loans worth $22,141,000; and U.S. Bank with 65 loans worth $17,830,000.

The Wisconsin Economic Development Corp. was the top provider of 504 loans with 302 loans worth $228 million. Great Lakes Asset Corp. of Green Bay was second with 12 loans worth $11 million.

For more on SBA programs in Wisconsin, visit