An SBA Yes Can Make

The Difference The agency’s loan guarantee encourages banks to take more chancesSpotlight – Banking and Finance

When Stephan Nash left an executive job in early 2004 to buy The Sailboat Shop, a Glen Gardner-based business that sells sailboats and equipment, he raised the $435,000 purchase price on his own. But until the Newark office of the U.S. Small Business Administration stepped in, the 35-year-old entrepreneur couldn’t get additional funding to expand his new business.

“With the backing of the SBA I got an $82,500 revolver, or line of credit,” he says. “This let me expand my product lines and buy inventory, and then lets me pay it down from cash flow generated by sales. We’re growing nicely, from about $620,000 in sales in 2004 to $680,000 in 2005.”

Nash says that it would have been tough to get the financing without the SBA guarantee. Even though The Sailboat Shop has been around for more than two decades, banks considered Nash a startup since he had less than two years’ experience in the boating industry.

It’s not unusual for startups or niche businesses to have trouble convincing a lender that they’re good candidates for financing. But for James Kocsi, SBA’s New Jersey district director, helping business owners like Nash is all in a day’s work.

“The SBA provides financial assistance for new or existing businesses through guaranteed loans made by area bank and non-bank lenders,” says Kocsi, from his Newark office. “We also offer consulting services through partners like SCORE [a national organization formerly known as the Service Corps of Retired Executives] and the state Small Business Development Centers, which both receive SBA funding.”

Typically, an SBA-partnered bank or other lender will make the initial decision about whether to accept or reject a loan application, or whether to seek out an SBA guarantee that can cover up to 75% of the debt.

The federal agency works with banks and other lenders through initiatives like the 7(a) Loan Guaranty Program, which can help startups and other small businesses to get up to $2 million in financing at competitive terms. Similarly, the SBA’s 504 Loan Program can help businesses get up to $4 million in long-term, fixed-rate financing for such assets as land and buildings, or machinery and equipment.

Shriver’s Salt Water Taffy co-owners Ginnie Berwick, 66, and her 60-year-old brother Hank Glaser, turned to the SBA for financing of their Ocean City business.

Although the 108-year-old confectionery manufacturing and sales business had been in their family’s hands since 1959, none of them had ever been able to buy the building itself, which was located on the city’s boardwalk.

“Through the SBA’s 504 loan program, Hank and I were able to get a $3.2 million loan from Commerce Bank and the New Jersey Business Finance Corp.,” says Berwick, who was a pre-med major at Bucknell before she went into the business. Her brother had been studying history at the University of Pennsylvania when he decided to team with his sister and carry on the family tradition. “It was a large loan, and the bank wanted backing.”

Besides expanding their taffy-making operations, the co-owners opened up a fudge-making kitchen and are in the final stages of launching a gelato shop.

“The loan approval process is not an exact science,” says Kocsi. “It’s based on a variety of issues. But regardless of whether you’re a startup or a mature company, there’s one bottom-line question that needs to be answered before a loan will be approved: are the odds good that you’ll be able to pay back the debt?”

Thinking About an SBA Loan? Think About This:

Clean up your own record first. New Jersey SBA Director James Kocsi says that even if a business is incorporated, most lenders will still closely look at an owner’s personal credit report. Be prepared.

Do your homework before you apply for a loan. Talk to a loan officer, SCORE volunteer or other expert to see if you’re even in the ballpark.

Document your ideas. Bring current and projected financial statements, tax returns and other relevant data to back up your financing proposal. Also, write out a business plan with realistic goals.

Be sure you’re ready to start your own business. “People often think they’ll make twice as much money working half as hard at their own business,” says Kocsi. “The truth is, for some time they’ll work twice as hard for half the money.”

E-mail to mdaks@njbiz.com