In New York, small businesses are big business. In fact, 99.8 percent of all New York businesses are small businesses, according to the U.S. Small Business Administration (SBA). That’s one reason why SBA 504 loan guaranties have become so important to Westchester’s economic growth. They enable a lender to support companies that might be outside the comfort zone of conventional lending standards.
What’s more, 2018 changes to SBA’s Standard Operating Procedures can give your business new advantages — if you navigate them carefully.
SIGNS OF STRENGTH IN THE WESTCHESTER ECONOMY
In Westchester, we’re seeing new vitality in sectors that had pulled back during the Great Recession. Transportation and construction firms have made a strong comeback. Fitness, child care and health care (especially urgent care) businesses are also capitalizing on the recovery.
Not only are more people looking to start or buy businesses, more are looking to sell them. Many baby boomers, for example, have been delaying retirement. Now they’re moving forward with their succession plans. Their retirements are driving the biggest generational transfer of wealth in history — trillions of dollars, according to State Street Global Advisors. And the new generation is prepping for changes, including growth through startups, acquisitions and franchise expansions.
At Webster Bank, we’ve seen a 50/50 split between startups and acquisitions. And the recent changes to SBA loan rules give new impetus to these plans.
SOME KEY ADVANTAGES OF AN SBA LOAN
A common misconception is that the Small Business Administration provides these loans. Actually, it offers a guaranty to cover a significant portion of the debt. That’s crucial for entrepreneurs who come to a bank without much liquidity. With an SBA guaranty, the bank assumes less risk. It can take on a loan that might otherwise fall outside its lending parameters.
Another consideration: If you’ve bought real estate in New York state, you’re painfully familiar with the Mortgage Recording Tax — roughly 2 percent of the deal in Westchester County. By using an SBA loan guaranty, 40 percent of that tax is exempt.
2018 SBA RULES: MAKING LOANS EASIER TO OBTAIN AND REPAY
Where once you needed to put down 25 percent in equity to acquire a business with an SBA loan, you now may need only 10 percent. And where previously an SBA loan guaranty required a 20-year amortization, you can now amortize over 25 years. Both these benefits allow businesses to keep more working capital on hand for day-to-day business operations.
The 25-year amortization can also enable the bank to offer a fixed rate, rather than one that’s reset every five years. That gives business owners more control over their lending costs.
THE BENEFITS OF WORKING WITH AN SBA-PREFERRED LENDER
Before you approach any lender, of course, you’ll need a well-organized business plan and projection plan (and for family businesses, a succession plan). SBA loans are no different from conventional loans from that standpoint.
While many banks can offer SBA loan guaranties, not all of them offer the same level of lending expertise and service. When time is of the essence — and when isn’t it in business? — an SBA Preferred Lender can cut three weeks off your timetable. SBA Preferred Lenders can make decisions in-house, rather than shipping them out to headquarters for approval.
Something else to take into account: Your SBA loan is just one factor in the economic ecology of your business. From cash flow concerns to payroll systems to financial risk management, a firm needs to optimize efficiencies everywhere possible to get the full benefit of growth. When your lender understands your company’s big picture and has the services in place to support it, you can be better positioned to capitalize on opportunity.
National Small Business Week spotlights America’s key driver of economic growth. SBA loan guaranties are making that growth possible for more enterprises, all over the country. And in Westchester County, you can see that opportunity in action.
Maria Barca is vice president and SBA relationship manager at Webster Bank, an SBA preferred lender. Barca has been advising clients on SBA opportunities for 13 years. She can be reached at MBarca@WebsterBank.com.