Florida SBDC

Employers might need to deal with underperforming employees, social isolation as remote working increases

We’re not sure yet that the newly remote workforce is here to stay in a big way after the pandemic is behind us. Yet, recent surveys and studies point out that the trend is not going away anytime soon.
Nov. 9, 2020|

Constant communication is vital when dealing with customer retention

In the best of times, customer retention is critical to small business success. But these days, with marketing dollars being slashed and customer acquisition budgets going down the drain, it is more important than ever to hold onto your customers.
Nov. 9, 2020|

Examination of cash flow will help avoid problems during slow times

Cash flow should be a regular managerial exercise, not crisis-driven, only to be performed during recessions or global pandemics,
Nov. 9, 2020|

Being well-prepared will make the SBA loan application easier

Being well-prepared will make the SBA loan application easier

BY GERRI DETWEILER

When it comes to small business lending, Small Business Administration loans are hot. In fact, in fiscal year 2019, the SBA guaranteed more than $28 billion to entrepreneurs that otherwise would not have had access to capital to start, grow or expand their small businesses. Business loan approval, in general, is the highest it’s been post-recession.

Gerri Detweiler

Gerri Detweiler is a leading nationally-recognized financing and credit expert with more than 20 years of experience. During the 2008/2009 financial crisis, Detweiler was interviewed hundreds of times, providing insightful expertise and actionable advice for traversing the turbulent landscape and unknown change. Today, she is education director at Nav, the trusted financial partner of more than 1.2 million businesses, where she gives Nav’s customers certainty in an uncertain world through expertise and actionable advice.

SBA loans appeal to entrepreneurs because they tend to have longer payment terms and lower interest rates than many other types of business financing and loans. But, like any low-cost business loan, getting an SBA loan can seem overwhelming. Don’t let it be.

“The biggest misconception is that there’s a lot of paperwork, but this is just a regular business loan,” says Bob Coleman, publisher of The Coleman Report, a leading SBA intelligence report for lenders. “The bank deals with the government, not the entrepreneur.”

Here are five things you should know to help land one of these coveted loans.

1. Do Your Homework
The more you know about your financial situation [i.e. your credit history, credit scores, risk factors] as well as your industry and competition, the better-positioned you will be to apply for — and get approved for — that SBA loan.

Dr. Kathryn Primm, owner/veterinarian of Applebrook Animal Hospital, took out an SBA loan to remodel a residence and equip it as a functional animal clinic.

“I did a lot of demographics studies myself before even applying,” she says. “I knew it was a low-risk loan because I know what a hard worker I am, and I know what a good veterinarian I am. The area was able to support a veterinary hospital as well, according to my research.”
Primm was able to pay off her loan in five years.

“The SBA was like my behind-the-scenes investor and I bought them out,” she says.
It’s also helpful to understand how SBA loans work and applicants should familiarize themselves with the basic requirements. The SBA doesn’t make loans; it guarantees them.

Each lender must meet the SBA’s minimum requirements, but beyond that the lender may have its own requirements as long as it doesn’t discriminate on a prohibited basis.

2. Know How Much You Need
There are several different SBA loan programs, each with specific uses. The 504 loan is for land, building and renovation, for example, while Export Express loans help small businesses develop or expand their export markets with streamlined financing. The most popular, by far, is the 7(a) loan program, which allows you to borrow up to $5 million with a 10-year repayment period [loans for equipment or real estate may be extended to 25 years].

Maximum SBA Loan Amounts
Up to $5 Million: 7(a), CapLines, Export Working Capital Program, International Trade, 504 loans*
Up to $2 Million: Disaster loans
Up to $500,000: Export Express loans
Up to $350,000: 7(a) Small Loans
Up to $1 million: SBA Express loans [SBA Express loan limits have been raised to $1 million through the end of 2020.] Up to $250,000: Community Advantage
Up to $50,000: Microloans

*Note: There is no project size limit for 504 loans, but the maximum SBA debenture [loan amount] is generally $5 million. Certain small manufacturers or energy projects may qualify for up to $5.5 million.

If you haven’t already, write out a budget for what you’ll do with the money if you secure a loan. Not only will this help you really dive into understanding how that money can best benefit your business, but it may also come in handy when talking to a lender who, naturally, will want to know you have a plan for the funds.

3. Know Your Numbers
Good credit and solid financials are often key to getting an SBA loan. Chester Gordon is president of M.A.C.-Tech Fabrication and Repairs Inc. in Queens, New York, a custom fabricating shop specializing in architectural metals and finishes. He recently closed on his second SBA 504 loan.

The first loan allowed him to purchase the building where he operates. The second allowed him to expand by building a second adjacent building and doubling the square footage of the enclosed space. He says his SBA loans “gave me the capability of expanding.” In addition to the physical space, the financing allowed him to hire more employees and to grow his business.

When it comes to the application process, Gordon recommends that applicants keep their credit in good standing because the SBA is very thorough. He says his loans required three years of financials, so he’s very methodical in his approach to keeping his financial information organized, relying on his accountant, his office manager and his wife, who works in the business and handles administrative duties.

The SBA generally doesn’t have a minimum personal credit score requirement, but individual lenders may. In addition, certain SBA loans — 7(a) loans up to $350,000 and Community Advantage loans — require lenders to prescreen applications using the FICO SBSS score. This score can take into account the owner’s personal credit data as well as information from a business credit report, and financial data. The SBA requires a minimum score of 155 [on a scale of 0-300] though many lenders require a score of 160 or above.

And speaking of numbers, make sure you’re keeping up with taxes.

“Producing fair and reasonable profits should always be the primary goal for small business operations, please ensure the business taxes reflect these profits,” says Tom Kindred, regional director of the Florida Small Business Development Center at Indian River State College.

“Lenders will focus on business profits as they evaluate the business’s ability to satisfy debt service requirements.”

4. Ask for Help
Entrepreneurs tend to try to do it all themselves, but if that describes you, know you don’t have to go it alone in applying for your SBA loan.

Chris Petropoulos of General Auto Recycling in Tiverton, Rhode Island, took a commercial loan for an employee stock ownership plan for $5 million. He quickly realized he would need to provide a lot of reports and documents for the loan. That’s why he recommends bringing a financial expert on to streamline your application process.

“A commercial financial consultant walked me through the process,” he says. “I would not recommend doing this without a representative who has experience with this type of loan.”
There are a variety of professionals who can help. These include:

• An SBDC [Small Business Development Center such the Florida SBDC at Indian River State College] adviser. Professionals from this organization can provide free assistance to entrepreneurs.

•A certified public accountant, enrolled agent or accounting professional who works with small business owners. They can help make sure your financials are well-organized and lender-ready.

5. Invest in Key Person Insurance
Insurance might be the last thing on your mind when applying for an SBA loan, but it could be the tool that ensures that your business thrives, no matter what might happen to you.

Sa El, co-founder of Simply Insurance, says that one of the requirements of an SBA loan is a life insurance policy that is greater than or equal to the amount of your loan and that you have a term length that is greater than or equal to the term of your loan.

This requirement applies to loans where, per SBA guidelines, the lender determines the viability of the business is tied to an individual or individuals. In those situations, the lender must require life insurance. Getting a life insurance policy on yourself, however, doesn’t provide the same benefits that a key person policy does.

“Getting a loan through the SBA is a great idea for any small business; however, it is critical that you have a plan for paying it back,” he said. ”If you have a key person that your business couldn’t survive without, then you need to get a key person insurance policy. Without this, you open your business and yourself up for financial ruin, especially if you can’t pay back the loan.”

You should also consider an updated life insurance policy. Lenders want to be sure their loans will be paid back in the event of your death. They do that by having you buy life insurance that assigns the death benefit to them. But loan applicants, in their scramble to form a business plan and arrange financing, typically fail to notice the life insurance requirement until closing time is right around the corner.

This article originally appeared on Nav.com.

See the original article in the print publication


Treasure Coast Business is a news service and magazine published in print, via e-newsletter and online at tcbusiness.com by Indian River Magazine Inc. For more information or to report news email [email protected]

Oct. 26, 2020|

SBA approves record number of loans designed to help business owners

At a time when small businesses across the country are struggling to stay afloat, some business owners are investing in business growth by expanding their facilities or buying equipment. In fact, a record number may be, according to some very recent loan data.
Oct. 26, 2020|

Community banks benefit from willingness to approve PPP loans for small business owners

Community banks benefit from willingness to approve PPP loans for small business owners

BY NANCY DAHLBERG

In South Florida as well as around the nation, small business owners applying for the Paycheck Protection Program often struck out with big lenders — even when they had been loyal customers. They had better luck with smaller, community banks that were less deluged with applications and nimbler.

According to the Small Business Administration, about 52% of the loans and 44% of the PPP program dollars were approved by local community banks and specialty lenders. That’s huge considering that banks with less than $10 billion of assets account for just 14% of the industry total of deposits, according to the Federal Deposit Insurance Corp.

Clifton Vaughn

A graduate of Miami-Dade College, Florida International University and the St. Thomas University, Clifton Vaughn is a Florida CPA. He has more than 40 years of business experience working in South Florida as an auditor, financial controller, financial planner and small business owner and operator. During his years as a business professional, he spent time in the airline industry, construction, consulting with small business owners, and teaching business and accounting courses at Johnson & Wales and St. Thomas universities. Vaughn has served on the boards of directors of the Miami-Dade Chamber of Commerce and the Miami-Dade Partnership for the Homeless.

“With closer proximity to the market place, stronger ties to the community and individual business owners, small community banks were better able to accommodate the volume of local small business PPP applications,” said Clifton Vaughn, business consultant with the Florida Small Business Development Center at Indian River State College. “The small institutions were surprisingly effective and efficient in acquiring PPP dollars for our region’s small businesses.”

In pre-COVID-19 times, the pain of changing banks — transferring balances and syncing incoming and outgoing payments to new account numbers — was a hurdle that stopped many from making the switch. But community banks nationwide are reporting that small businesses, who felt unserved by their banks, are showing their displeasure by moving their money elsewhere or at least opening an additional account as a thank you for PPP service.

And survey numbers show the trend, too. Of businesses that secured PPP funding, about 28% received their loan from a lender with whom they had no prior relationship or a bank that wasn’t their primary one, according to a July survey of 931 firms conducted by Barlow Research Associates. About 44% of those borrowers said they would move at least some of their accounts and loans to the bank that came through for them during PPP, the survey found.

EXPECT LANGUAGE CHANGES
Chalk this up to yet another change coming for small business thanks to the COVID-19 pandemic.

The language in retail and restaurant leases is changing as a result of the pandemic.

New leases are being written with substantial changes, particularly in regard to provisions that provide relief for tenants that are unable to fulfill their contract obligations because of circumstances out of their control, such as a natural disaster or pandemic. The language in these provisions is often broad, and landlords did not interpret them to apply to shutdowns caused by a pandemic.

Now experts are saying new clauses will include language stating that should there be any government-mandated business closures — whether by city, county, state or federal agencies — the tenant would be protected with partial rent abatement. That also protects the landlord, as these agreements often add that the tenant would need to pay a minimum rent to cover costs like property taxes and maintenance, he said.

Other experts have been seeing clauses that outline what spaces are available for extra seating, fulfilling curbside and/or delivery orders should government restrictions be enacted again.

“As innovative as restaurants had to become during this pandemic, it is no surprise that landlords are reacting with new and innovative language in commercial leases,” Vaughn said.

LAWSUITS STACK UP
As more small businesses grapple with the economic impacts of the pandemic, more than 100 South Florida businesses have insurance cases pending in state circuit and federal courts, according to a database of COVID-19-related complaints maintained by the law firm Hunton Andrews Kurth. Among them are well-known restaurants and attractions as well as medical practices and manufacturers.

“Almost all of the insurance cases are business interruption,” Walter Andrews, partner and head of the insurance practice group at Hunton Andrews Kurth’s Miami office, told the South Florida Business Journal. “Businesses have lost so much money because of shutdown orders so I expect we’ll keep seeing more of this litigation.”

Andrews said insurers are spinning a false narrative when they argue they don’t cover pandemics. He said the floodgates should open in the next few months because he knows his firm and several other big firms plan to file a number of cases in the coming weeks.

All business interruption insurance is not alike, according to Mark Friedlander, spokesman for the Insurance Information Institute. He told the business journal that some business interruption claims in litigation are not legitimate because property insurance policies don’t necessarily list every exclusion. Instead of looking at whether viruses are excluded by their insurance policies, business owners should take note of which events are covered, he added.

“Unless viruses, bacteria and contamination issues are specifically stated as covered, you don’t have the coverage,” Friedlander said.

Courts nationwide so far have sided mostly with insurers. But thousands of cases, including the more than 100 in South Florida, are pending. Adding insult to injury, small businesses are reporting that their insurance premiums are increasing upon renewal.

This article is provided by the Florida SBDC @ IRSC, the Small Business Development Center within Indian River State College’s School of Business. The center’s team of business experts works one-on-one with hundreds of entrepreneurs and business owners each year by providing confidential, no-cost consulting. The center’s mission is to help Treasure Coast businesses grow and succeed.

See the original article in the print publication


Treasure Coast Business is a news service and magazine published in print, via e-newsletter and online at tcbusiness.com by Indian River Magazine Inc. For more information or to report news email [email protected]

Oct. 16, 2020|

Guide to business resiliency in times of disaster

Florida's Small Business Development Center - Helping businesses grow and succeed
Jul. 8, 2020|

Changes in PPP designed to make it more attractive to small business owners

The president has signed the Paycheck Protection Program Flexibility Act of 2020. This law may make PPP loans more attractive to small businesses. Here are seven of the main ways it may help your business.
Jul. 8, 2020|

Businesses need to be prepared for hurricane season

The Florida Small Business Development Center at Indian River State College urges small businesses to prepare for the 2020 Atlantic hurricane season, which runs from June 1 to Nov. 30.
Jul. 8, 2020|

There are loan options for small businesses but they can be expensive

I think it’s safe to say the Paycheck Protection Program wasn’t a good fit for every small business looking for capital. What’s more, the Small Business Administration loan is not the only source of financing options available. A savvy business owner can leverage the loan options that are available to maintain business operations, grow revenue and exit the current financial crises a little bruised and battered, but none the worse for wear.
Jul. 8, 2020|