Small-business bucks: the SBA increases loan-guarantee amounts. Where can you find a microloan?

• Author: Mayer, Kathy
• Position: Business Finance - Small Business Administration

SMALL BUSINESSES planning to grow in 2005 will find expanded funding options through the U.S. Small Business Administration, renewed interest among financial institutions and even micro-enterprise programs for smaller loans.

"The chance to get money is good," says Bruce Burkart, senior vice president at 1st Source Bank in South Bend. "We have come through the recession, and financial institutions are anxious to lend money again."

The banks are back. "Banks are now back on the street, cautiously but also somewhat aggressively, looking for good lending opportunities," says Jean Wojtowicz, president of Cambridge Capital Management Corp. in Indianapolis, which manages several loan funds. In the last two decades, it has provided some $370 million in funding to more than 900 Indiana companies.

"Because banks have come through some tough times, they also are looking very carefully at how they structure credit," she says. "They would rather do 100 deals and only take part of the exposure than 50 deals and all the exposure."

SBA programs have long been a viable resource for small businesses, says Gail Gesell, Indiana district director for the SBA. It offers two major categories of loans: the Statutory 7(a) Loan Guarantee Program and the 504 Certified Development Company Program.

Up until now, under a 7(a), startups and existing small businesses could borrow up to $2 million through a lending institution, with SBA guaranteeing up to $1 million. Loans could have a seven-year term for working capital, 10-year term for fixed assets, and 25 years for real estate or construction.

"The reason why small businesses should desire this SBA-guaranteed loan is because of the length of time--it's much longer with an SBA guarantee, so monthly payments are much lower," Gesell says. "At times when they are having a challenging period of revenues, they can still repay and not get into hot water."

The 504 program, for purchasing real estate or buildings, building new or buying major pieces of equipment, is three-part--cash from the lender for up to 50 percent of the amount needed for the project, a debenture guaranteed by SBA for up to 40 percent, and the remainder from the business itself. The 504, too, has a long maturity--10 years for equipment or 20 for property.

"The advantage of this program is the length of time for the loan, and also, sometimes the borrower only has to put in 10 percent to 20 percent of what is needed from their own finances, which is...