Small-Business Bucks.

• Author: MCKIMMIE, KATHY
• Position: Brief Article

Financing options for start-ups and expansions

Lenders want to know two things: "Is the plan good, and can these people pull it off?"

That's according to Dave Miller, director of the Bloomington Area Small Business Development Center. If the answers are "yes," there are all kinds of financing programs available to start and grow a business.

The bottom line is: Start with your bank. A good banker will know the options and can steer you in the right direction. After all, it's in the bank's interest to help you succeed so that you'll become a customer--if not today--then after a successful start elsewhere.

The amount of risk to the lender will determine where on the scale- from traditional bank loan to venture capital-you will fall. It will also determine the cost of the money.

Enter the U.S. Small Business Administration. It doesn't make loans but it backs loans that are too risky for banks to make on their own, or for longer terms. "We leverage tax-payer dollars by guaranteeing bank loans," says Jan Wolfe, Indiana director of the SBA.

In fiscal year 1999, the SBA guaranteed 508 Indiana loans totaling nearly $110 million with its 7(a) local program and another $38 million to 114 businesses under its 504 local program. SBA guarantees range from 40 percent to 90 percent of the loan amount, depending on the program used. The SBA gives full lending authority to banks it designates as "Preferred Lenders," while "Certified Lender" status is granted to others heavily involved in the SBA program.

SBA-BACKED LOANS

Generally, the SBA's 7(a) guaranteed loans can extend up to seven years for working capital, 10 years on equipment and 25 years for real estate. Loans may be used for business startups, expansion, equipment, working capital, inventory or real-estate acquisition. The SBA can guarantee up to $750,000 of a private-sector loan, as much as 80 percent on loans of $100,000 or less, and 75 percent on loans of more than $100,000.

Interest rates are 2.25 percent or 2.75 percent above the prime lending rate, depending on the length of the loan. An exception is for loans under $50,000, where the rates may be slightly higher. The SBA's fee to the lender for the guarantee may be passed on to the borrower.

The SBA's 504 program is designed as an economic-development tool targeting expanding businesses whose investment will create jobs. It provides long-term, fixed-rate subordinate mortgage financing for acquisition and/or renovation of capital assets...