5 Financial Steps to Take Now During Coronavirus

Now’s a time when your goal may well be simply to ride out the next few months. That’s fine. Yet riding out the next few months isn’t the same as doing nothing. By being proactive, you can not only make the most of a bad time, but position yourself …

By: Ami Kassar

There’s no denying a societal crisis, especially a global one is a game changer in many ways, especially in the business community. Plenty of business people – entrepreneurs and otherwise – are dealing with real pain and life- and business-threatening situations. You can only hope for the best.

Yet business owners, especially those whose current and future prospects aren’t completely bad off, have the ability to take advantage of whatever opportunities have arisen in these strange times.

That’s not to say you should prey on the misery of others, but there are some things you should be doing at this point that could pay off in the future.

Here are five things to consider.

1. Restructure any debt you already have

Ideally, you don’t want to be taking on any more debt these days if you can help it – and that might be a big “if” for a lot of businesses. Still, there’s plenty of opportunity to reduce your monthly payments.

Considering how life is always changing, your business might be viewed vastly differently now by lenders. For example, perhaps you’re generating increased amounts of collateral, cash flow or credit. Even with a pandemic slowdown, maybe your products or services are still in demand.

Refinancing should be on your table. Just by shaving a percentage point or two is going to cut your monthly debt service, which will put more money in your coffers. And in these troubled times, cash is king more than ever.

2. The SBA works

Unlike in the past, you might now be eligible for a Small Business Administration-backed loan – or a better conventional bank loan.

The SBA got a lot of attention because of the CARES Act and the Payroll Protection Program, but it’s the agency’s regular lending programs that should interest you. Do note that in its regular programs, the SBA doesn’t make the loans – it only backs them for a select group of lenders.

The flagship 7(a) program offers low rates and fees, comes with counseling and education if so desired and generous repayment terms. In addition, lower down payments, flexible requirement regarding overhead and no collateral may also figure into the equation

3. Loyalty is nice when it comes to dogs, but necessarily for lending

At the very least, you need to conduct a debt review to consider financing options as they stand now.

That said, you have to be careful. Your current lender won’t want you to go, especially if the current arrangement is lucrative in their favor. They may try scare tactics, claiming you’ll lose flexibility if you change lenders or that you may risk running out of money.

Resist that pressure. Think of it this way: What’s more important – your business or your lender? Your lender is certainly looking out for itself first. You must, too.

And remember, it’s always possible your lender could rework your deal, which could save you from awkward moments.

4. Loans (and loan restructuring) aren’t always the answer

More capital isn’t always the answer. Sometimes, it’s better to make do with less.

Entrepreneurs generally don’t want to scale back their operations because they’re too worried about growth. But few businesses grow in a straight line. There are ups and downs along the way and now you might just want to minimize the damage.

Steps you might take include deferring capital expenditures or deferring or reducing lease payments and non-critical vendor payments, if possible. By reaching out proactively to landlords, vendors and other contractor holder, you might be able to craft some breathing ground.

On the unpleasant side, you could think about furloughing some employees or even pay cuts (if you choose the latter, make sure you cut your pay as well).

5. Give yourself some credit

This advice – which isn’t heeded nearly often enough — applies for both when your company is doing well and when it’s struggling.

You should open a line of credit.

A credit line gives you peace of mind because you have a ready reserve to tap. And it gives you a great deal of flexibility. Say you get a short-term opportunity to buy a stockpile of a key raw material at a ridiculously low price. With a credit line, you can take advance.

Remember that you only pay interest on a credit line if you borrow from it – and there’s no requirement that you do that. The credit line can sit there untouched, if need be.

In summary, now’s a time when your goal may well be simply to ride out the next few months. That’s fine. Yet riding out the next few months isn’t the same as doing nothing. By being proactive, you can not only make the most of a bad time, but position yourself for the inevitable rebound.


Securing Funding For Your Small Business: Busting the 3 Biggest Myths About the Small Business Administration

Given that politics are always a hot topic, you’ve likely heard plenty from both political parties about how government at all levels simply doesn’t work.

That’s not a new complaint, and just about everyone can share a story about some government nightmare they’ve endured.

But there’s a federal agency that bucks the trend: The Small Business Administration. The SBA enjoys broad support from all corners of the political spectrum—and deservedly so. That’s because the SBA, which dates to 1953, fulfills its mandate of helping small businesses.

Don’t believe me? Google it. Sure, you’ll find scattered complaints, but the SBA generally gets strong reviews.

That said, the SBA doesn’t always get the credit it deserves and there’s a lot of misinformation going around as well, especially among entrepreneurs who are missing out on strong financing possibilities. 

Let’s talk about three of the biggest myths surrounding the SBA.

The SBA lends money.

Although the SBA can directly lend money in cases of disaster, that’s not its main role when it comes to lending. Instead, it serves as a government guarantee program for banks and nonbanks.

That means it essentially serves as a backup to lenders who might otherwise not be interested in making loans to smaller and/or unproven businesses—it offers guarantees up to 85% for loans up to $150,000 and 75% for loans bigger than that. Because lenders are less likely to endure the full brunt of defaults, they’re more likely to make loans to unproven businesses.

The SBA does set requirements and application process details. Applications will require personal background information, a business plan, personal and business credit reports, income tax returns, bank statements, and a resume, among other things. It’s also possible personal or business collateral is required.

One benefit for you, the borrower, is that the loan terms tend to be longer (up to 10 years) and require smaller monthly repayments because of good interest rates.

The SBA is only for mom-and-pop shops.

Mom-and-pop shops are definitely among the kinds of businesses the SBA is looking to help, but they can also work with much larger businesses.

Through its flagship 7(a) program, SBA-backed loans can be as large as $5 million for needs such as working capital. And through its lesser-known 504(b) program, as much as $12.8 million can be obtained for businesses seeking to buy real estate or major equipment.

A $5 million loan, not to mention a $12.8 million loan, is way above what a mom-and-shop needs.

While there’s no one-size-fits-all template for a typical SBA loan customer, most are businesses that are going to have anywhere between $50,000 and $5 million in annual revenues and up to 40 employees. Those businesses are likely to be cash flow positive and are profitable.

Of course, if mom and pop need a loan, small amounts are available, too. There are no minimum guarantee amounts for any SBA loan program.

My banker didn’t tell me about SBA-backed loans or said I’m not qualified, so I’m out.

Not to fear: You’re most likely not “out.”

There are about 2,200 banks and nonbank lenders through the United States who write SBA-backed loans. Each one uses the program differently and requires varying qualifications.

Thus, even if one lender rejects you, it doesn’t mean that all will. It’s always worth trying another lender (or two or three) if you get rejected—advice that applies when seeking non-SBA loans as well. If you go to a doctor and don’t like what he/she says, you may try another physician, so why not do the same here?

In addition, there may be other reasons why your initial lenders may not tell you about SBA loans. 

Perhaps they’re ignorant about the program. Or maybe their employer doesn’t give them incentives that make them want to push SBA loans; remember, your banker is trying to make a living, too, and might push you toward more profitable options for his/her own pockets.

It might even be something as simple as your banker is lazy: Lining up an SBA loan usually does require more documentation than a regular loan.

And large banks often aren’t interested in making small loans, which can be less profitable and more risky than larger loans. So, if you get rejected for an SBA loan by a large bank, try a smaller bank, which may well specialize in the program and have lenders well-versed in the process.

Hopefully, I’ve cleared up misconceptions about the SBA and its lending programs. These programs work, as many business owners will attest, and there’s little to no downside in at least considering an SBA loan the next time you need funding. Its website, sba.gov, is helpful as well, providing further information in an easy-to use format.

FAQ: 8 Common Questions (and Answers) About Loans for Disaster Assistance

Money expert Ami Kassar answers your most pressing questions about disaster assistance and traditional SBA loans.

Are you looking to apply for a Small Business Administration (SBA) loan or disaster assistance for your company? Inc. columnist Ami Kassar, founder and chief executive officer of MultiFunding, a Philadelphia consulting firm that advises business owners on access to capital, took questions from business owners during a recent webinar series about securing loans in this uncertain economic environment.

Here are eight of the most frequently asked questions and his answers.

Should I apply for a loan through disaster assistance or a regular SBA lender?

There are pros and cons to both. The disaster assistance loan offers lower rates and longer payback periods, but it will likely be a slower and complex process. If your business was in good shape last year and your financials were strong, you will most likely be better off going through the regular SBA loan process.

What if my state is not listed as a disaster zone disaster zone?

It’s likely that it will be on the list of Presidential and SBA Agency Declared Disasters in the near future. It’s still worth getting together your financial records now because you can’t apply for any loan without them.

What if I have employees and offices across various states? 

If you’re applying for an SBA disaster loan, the address you use to file your tax returns should be the address you use to submit a loan application.

How long is the queue for traditional SBA lenders? Are they easier to get right now?

Usually SBA loans of $350,000 and under can be processed in three to four weeks, but queues may be longer during this time due to demand. The more organized and prepared you are, the more documents you have ready, the more likely your loan will be processed quickly.

What if my business is a startup and less than one year old?

You will likely be more successful with an SBA disaster loan if you have not been in business at least two years. 

If I already have an SBA loan, can I get another? What are my options?

If you get an additional loan that’s under $350,000, you have a little more flexibility because it can sit in second lien behind your current loan. If you need more than that, the best thing you can do is go to your current SBA lender and ask for an add-on loan. Every business owner is entitled to a total of up to $5 million in SBA loans, if you have the cash flow and the credit to back it up. However, it is possible that this will increase to $10 million with new legislation.

If my company was not profitable in 2019, is it worth applying for a loan?

It will be very difficult to get a traditional loan without proper financials, but it may be worth applying for a disaster assistance loan.

If I can’t qualify for an SBA loan, should I seek out a short-term loan elsewhere?

There will be a lot of scams trying to attract small businesses with very enticing short-term loans that will have to be paid off over 30, 60, or 90 days. Beware of taking on any debt with a short-term payback and a high interest rate in this environment.

Author: Brit Morse, Inc., Staff Writer

Related: Strapped for Cash? 2 Business Loans You Need to Pay Attention to Right Now

UPDATED (March 23) Strapped for Cash? 2 SBA Loans You Need to Pay Attention to Right Now

SBA and disaster relief loans could save your business. Here’s how to determine which one may be right for you.

If your small business needs financial assistance during these uncertain times, you may find yourself applying for a Small Business Administration (SBA) loan. Inc. columnist Ami Kassar, who advises business owners on access to capital, has been hosting a series of free webinars that continue every day this week to answer questions about loans. Here, Kassar breaks down the differences between two SBA loans you may want to consider.

Here’s what you need to know:

SBA Emergency Injury Disaster Loan (EIDL)

This type of loan is now available as part of the government’s response to the coronavirus. Keep in mind, even though you’re applying through the SBA, the lender is the government–not a bank–so it will likely take longer to approve than a traditional loan.

This emergency loan also requires a personal guarantee, such as a lien on your business and your home. “They’re not free money,” Kassar said. “It is a loan application, and it takes time to get them and you’re going through the government.”

At this point, all states and territories are disaster zones. To qualify for this emergency loan, you have to show “substantial economic injury,” which means you’re unable to meet obligations or pay your regular expenses, and you’re unable to obtain credit for more than $350,000 elsewhere. Up to $2 million in assistance is available, but the exact amount will be based on how much your business has been affected. You can apply online.

Traditional SBA Loan

Kassar expects government legislation will be approved in the next few days to increase the budget for standard SBA loans and allow business owners to use them for payroll support, including sick leave. 

If you have an existing SBA loan, the SBA is encouraging lenders to work with you on payments, so you’ll want to contact your lender, Kassar said.

What to Do Before You Apply for a Loan

  • File your taxes now, particularly if 2019 was a strong year, and prepare a personal financial statement.
  • Put together three years of business and personal tax returns. If 2019 tax returns are not available yet, lenders will want to see your year-end 2019 financials and the personal financial statement, if you own more than 20 percent of the company. Be sure to put together your monthly operating expenses from March through September of 2019. This data will be an important part of your loan application, Kassar said.
  • Provide forecasts and budgets for 2020–ideally a best-case, an expected-case, and a worst-case scenario for your company. Kassar said this will show lenders you have taken the time to think about it.
  • Prepare a debt schedule.

Finally, if you’re considering a loan, keep in mind the emergency loan offers lower rates and longer payback periods, but it will likely be a slow and complex process. Alternatively, the standard SBA loan may get you to the finish line faster, but rates will likely not be as low.

Author:Brit Morse. Inc. Staff Writer

Where to Turn For Financial Help For Your Business During the Coronavirus Crisis

If you’re concerned about the impact of the virus on your business and cash flow over the next few months, there are several financial options to consider to get through the challenges.

I have been asked by many business owners over the past few days about the emergency SBA Coronavirus loans. As we wait for information to become available about this program, some historical context about these emergency loans could be useful.

The Small Business Administration does, and has historically, issued loans in emergency situations, such as hurricanes, fires, tornadoes, etc. What makes these loans different from regular SBA loans is that they are issued by the government–not the banks. And while the interest rates are low and the repayment terms are favorable, the application process has historically taken months and is often unpredictable.

Many business owners are concerned about the impact of the virus on their business and cash flow over the next few months. If you are, too, it is important to know that regular SBA loans are still available through banks and we have not seen any changes in their underwriting yet.

Traditional SBA loans are still available, and often easier to apply for.

The application process for regular SBA loans is simpler, if you are applying for $350,000 or less and have the historical cash flow to support the payment. These loans amortize over 10 years and the interest rate is 7 percent. There are no pre-payment penalties, and no lein on a house–again, if the loan is $350,000 or less. While the lender will take a lein

on your business assets, it is willing to sit in second lein position behind other loans. It is also important to note these are term loans instead of lines of credit, which means you start paying interest on the full balance immediately.

In addition to SBA options, you may want to approach your bank about a line of credit, or see if you can get a home equity line of credit against your house. On the other hand, you should be extremely careful of online lenders offering loans or advances with quick paybacks. While they may be appealing for their simplicity, they can rapidly become a bigger problem as daily payments can drain your cash flow.

Filing your taxes now could help speed up the approval process.

If you are interested in one of these loans, it would be wise to file your 2019 tax returns as soon as possible, as this could make a difference in being approved. Ninety-plus percent of business loans, including lines of credit, equipment loans, government lending, senior debt instruments, commercial mortgages, and even asset-based lending (at reasonable rates) will require tax documentation.

As the impact of the coronavirus is ever-changing, this situation is fluid. As more information becomes available my advice could change and my promise is to keep the readers of this column updated regularly. In my company, we advise business owners on a daily basis about SBA loans as well as other borrowing options.

This Is the Biggest Problem With Online Loan Calculators

These online tools are a great starting point when searching for a loan, but alone, they could be problematic.

When it comes to things that literally changed the world, the internet ranks right up there with the wheel, the light bulb, vaccines, the airplane and the computer, to name a few.

Anyone who uses the internet knows just how valuable it can be. For those who grew up before the internet was in widespread use, it’s sometimes difficult to remember how the world managed to function without it.

And anyone who’s ever used the internet also knows about some of the pitfalls associated with it, such as information overload, the anonymous spread of hatred and other social ills, and even the increasingly recognized internet addiction.

Another problem associated with the internet is the proliferation (knowingly or otherwise) of false or misleading information.

That leads us to the topic of the day: online loan calculators. In short, they can be problematic.

Good Intentions, Suspect Results 

Online calculators were not designed to be scams. When used as one tool in your decision making process, they actually can be quite helpful. But alone, they may be trouble. That’s because those loan calculators have a default setting that may not be right for you.

The Journal of Behavioral and Experimental Finance published a study in June 2019 that concluded that depending on the calculator’s settings, calculators could unconsciously manipulate would-be borrowers into choosing a more expensive loan than necessary.

For example, the study showed that it was nearly twice as likely for a borrower to choose a longer-term loan if the default settings were for a five-year or longer than if the default setting was just one year.

Researchers had two theories as to why study participants acted the way they did. One theory was that the default setting served as a starting point for comparison. The other theory was that participants somehow considered the default setting as a social norm (a most popular choice) or the prescriptive norm (recommended choice).

Use Them With Other Tools

Don’t get me wrong, online calculators have some value, especially as a starting point. Using a calculator can at least get you into the ballpark of what you might afford (calculators, of course, can’t incorporate your unique financial circumstances).

But if you’re going to use a calculator, be sure to try numerous settings other than the default. Even better, use a calculator from a website that doesn’t repopulate information into its calculator.

Once a calculator gives you a rough idea of what kind of loan might be right for you, you have more work to do.

Talk to friends from affinity groups, fellow entrepreneurs, mentors and anyone else who might have valuable insight into financing.

Do some non-calculator internet research of your own.

Crunch some numbers yourself, taking into consideration your stomach for risk and realistic expectations for your business, including best – and worst-case scenarios.

The point is that when it’s time to talk to a lender, you should be fully prepared for what’s likely to come next. Gordon Gekko’s priority was skewed in “Wall Street,” but he was correct when he said, “information is power.”

How Today’s Low-Interest Rate Environment Can Benefit Your Business

2020 could be your year to take a financial risk with low-interest rates holding steady for the foreseeable future.

I discuss regularly about whether the time is right for a business to obtain a loan, but one thing not mentioned often is how the overall business environment impacts that decision.

Although desperate or reckless entrepreneurs sometimes turn to internet loans with exorbitant interest rates and onerous terms, 2020 is shaping up to be a good year to secure a loan– assuming your company is in a strong financial position.

At the Federal Reserve‘s last 2019 meeting a few weeks ago, it left borrowing costs unchanged and indicated that it plans to keep rates steady throughout 2020.

That’s good news for you, if you’re looking to expand. 2020 is an excellent time to do it.

Loans aren’t going to get a whole lot cheaper than they are right now: You likely can line up a 10-year loan from the federal Small Business Administration with an interest rate of 7.5 percent. Who wouldn’t enjoy terms like that?

Also, if your balance sheet is clean, now may be the time to refinance existing loans. Even if you’re extending the length of your loans, the lower payments may give you much more significant cash flow to handle everyday needs.

Remember that recessions or events that spur economic downturns aren’t always predictable– even if the signs were evident in hindsight. So don’t think you have plenty of time, again assuming your company is in a strong position.

Plus, there’s another benefit to this timing: When interest rates are low, everyone theoretically has more money, including your customers. That means that not only are they more likely to buy from you, but they’re more likely to pay you back promptly. In turn, you can use that added cash to your benefit, whether it is to bolster reserves, pay off your own debt, or something else.

All this said, I can’t say that everything is perfect. Low- interest rates aren’t entirely favorable, although the good certainly outweighs the bad.

But a negative side effect can include higher insurance premiums. Because insurers won’t be making as much on their investment, they may increase rates to make up the difference.

Overall economic activity may slow as retirees reduce their spending because the amount of interest income they receive declines.

Meantime, banks may eventually reduce lending because the lower interest doesn’t make it worthwhile for them to take so many risks. Thus, some of your customers might eventually not be able to buy from you if they face a funding squeeze.

There’s even the possibility of a so-called liquidity trap when instead of spurring economic growth, low-interest rates reduce the money flow as investments are made into assets that don’t foster higher employment.

Of course, there’s no guarantee any of these things happen, but they are something to keep in the back of your mind as you try to take advantage of interest rates that almost assuredly won’t be this low forever.

Scared to Pivot? Here’s Why Embracing Change Can Save Your Business

Change is hard but status quo will keep you down.

In the past, I’ve discussed the idea of “ripping off the bandage;” that is, removing whatever constraints (voluntarily or involuntarily) is preventing your business from moving to the next level. And recently, I came across another example of why doing what’s uncomfortable in the moment can be the best thing to do for the long-term.

A friend of mine is an accountant who runs a traditional tax practice and has enjoyed a comfortable living. But he thinks the conventional accounting model is dead and found a new niche he enjoys– 40 percent of his practice is now devoted to helping e-commerce companies deal with inventory management and related issues.

So, he’s split.

He’s too afraid to give up his day-to-day tax clients, who produce about half of the firms revenue, to focus on what he wants to do.

Part of that is because he feels responsible for his coworkers who handle the traditional tax work. But it’s also tied to not wanting to lose the cash flow: Not long ago, he took out a $350,000, 10-year loan through the Small Business Administration’s 7(a) program to make some investments. The money received from tax clients helps him pay it back.

He’s scared to drop the traditional services, and who can blame him?

As a solution, I’ve counseled my friend to take his lead tax guy — who’s already responsible for a majority of the traditional work — and let him start a new division of the company that focuses solely on tax work. The tax guy is a longtime employee and entirely trusted by my friend, so it seems like a natural fit to give him added responsibility.

Although the firm itself would change, it doesn’t really impact the clients and, hence should keep all the revenue coming in.

Meantime, my friend would spend only an hour or two per week checking in on the tax division — just enough time for oversight and keep some skin in the game. The rest of the time, he’d be focused on a practice devoted to e-commerce companies.

It makes total sense, yet he’s still hesitant to go through with it. As I said before, I understand entirely. Change is hard and goes against human nature for many people. If you think about it, many conflicts throughout history involve people promoting new ideas butting up against people who want to keep status quo.

Still, running a business isn’t always going to be easy, no matter how good of a product or service you offer. There will always be speed bumps, as well as opportunities that involve some degree of risk. Your ability to navigate problems and opportunities will ultimately determine how successful you will be.

In this case, the status quo definitely is more comfortable, but taking a bit of a risk, my friend could have his proverbial cake (a business line that interests him more and could potentialy be lucrative) and eat it (maintaining a staid, but still effective tax practice), too.

Why Sometimes You Need to Have the Guts to Do What’s Momentarily Painful in Business

We all have bandages, whether it’s in business or life itself, and at some point you reach a stage where there is a constraint that’s holding you back.

Things in your company may be coming along just fine, but you’ll never be able to fulfill your company’s potential by keeping things as is.

Sometimes, you get lucky and the constraint is removed for you. For example, maybe that business partner you’re at odds with decides to move to South America to do something completely unrelated. At other times, you have to make the difficult decision, like getting rid of that business partner who won’t leave voluntarily. Think of this like ripping off a bandage.

I’ve learned a lot by trial and error and have found my business stuck at various times largely because of my own doing, or lack thereof. In the not-too-distant past, I had my bandage ripped off for me, and after the brief initial pain, it helped me take my business to the next level.

For a long time, my primary method of drumming up business had been flying around the country to speak to affinity group gatherings of eight to ten people. I enjoyed the closer personal contact and cultivated a fair number of clients, but it wasn’t an efficient use of my time.

A disagreement with the affinity group led to the termination of our relationship, which was stressful. Yet ultimately, they did me a favor. 

I’m now able to book much larger groups– usually around 75 people a pop. Yes, I’m still flying around the country, but I’m putting myself in front of many more potential clients. And, in a sense, that’s my new constraint, as there are only so many hours in a day.

My response to that constraint? I’m contemplating an online learning platform that would diminish my frequent flier miles, but give me much more time to work on other aspects of the business.

Remember, that after you remove one constraint, another will ultimately emerge, or there might be lesser constraints that become more problematic. You might even be dealing with constantly moving targets.

And looking back, ditching the affinity group was far from the first constraint I’ve tackled. In my company’s early days, I thought our biggest need was more clients (and it certainly was a need), but it was more important that we got better at our main services and keep the customers we did have happy.

Courage required

I understand that status quo isn’t necessarily a bad thing, and it’s a comfort zone for a lot of entrepreneurs. Still, unless you’re 68 years old and looking for an exit strategy, you always need to be pushing forward with your business. That means if nobody rips off your bandage involuntarily, you’ll have to summon the guts to do it yourself.

One way to test-drive the bandage removal is a theoretical exercise where you’re banned from doing whatever the constraint might be. That forces you to consider the consequences and prompt you to react to them. How will that turn out?

In all probability, the exercise will show you that removing the constraints won’t be as painful as imagined.

This Loan Program From the SBA Can Help Fuel Your Business in 2020

The SBA 504 loan program should be your first consideration for your real estate and equipment growth needs.

Most entrepreneurs typically start their business in a leased facility.  And at some point, if things go well, one might face the decision to buy your own real estate or keep paying rent.  And if you are in the manufacturing business, a significant part of your capital expense is for equipment.

If you are wrestling with these decisions, you should strongly consider the Small Business Administration’s (SBA) 504 loan program. This loan program is designed to give small businesses an additional means of landing financing while simultaneously promoting both job creation and business growth.

As you probably know, I’m a big fan of the SBA and it’s various programs. Not enough people are familiar with the flagship 7(a) loan program, and fewer still know about the 504 loan program (it is not as widely used), but you should. 

How It Works

The structure and operation for 504 loans are a bit different than their counterpart, the 7(a).

For one thing, the loans are made available through community-based partners of the SBA called Certified Development Companies (CDC). These CDCs are nonprofits that the SBA regulates and certifies. Nationwide, there are more than 260 CDCs, each with a geographic area that it covers.

The 504 loans are structured so that the SBA (through the CDC) provides 40 percent of a project’s total costs. A participating lender accounts for 50 percent, while the borrower is required to contribute ten percent of the project’s cost.

The participating lender, usually a bank, will hold the first lein position, while the CDC holds the second lein on the 504 loan, which is for 20 or 25 years at a fixed rate.

Does this sound good to you? It should.

Not only do you get 90 percent financing, but there are extended loan amortizations and no balloon payments on the CDC loan. And there’s a fixed interest rate.

Those savings should result in better cash flow for your business.

Some Other Detail

There are a few requirements you must meet.

Your business must be for profit (and can’t be speculative) and have a tangible net worth not exceeding $15 million, as well as an average net income of $5 million or less after federal income taxes in the previous two years.

The maximum loan amount (for the CDC loan) is $5 million, although some energy-efficient or manufacturing projects may get $5.5 million. Also, loan recipients must create or retain one job for every $65,000 the SBA guarantees – while it’s $100,000 for manufacturers.

Do note that there are alternatives to job creation and retention, such as community development goals, public policy goals, or modernizing or upgrading facilities to meet safety, health or environmental requirements. See sba.gov for details about these goals, as well as other particulars related to the loans.

Nothing’s ever a sure thing, but the 504 loan program is about as close as it gets in business. Many clients I’ve worked with have successfully used the program to grow their businesses, and the reviews tend to be superb.