The SBA: good help - if you can get it - Small Business Administration

Home Office Computing, May, 1992 by Timothy Middleton

"SBDCs have a databank of talent. When you need help in finance, marketing, legal issues, government procurement, or exporting, you go to them and they assign you an expert who charges a modest fee," says John Horton, who got help writing a business plan from the Rhode Island SBDC at Bryant College when forming Horton Ahern Bousquet, a three-person ad agency in Providence, Rhode Island (see "From $0 to $200,000" in the February issue).

"We were impressed by the SBDC in Des Moines," says Monte Kern, who tried to buy a business in nearby Waukee, Iowa. "Our counselor was an attorney and CPA, which gave her excellent credentials. She seemed knowledgeable and very competent. Our purchase of a small business seems to have fallen through for now, but we would not hesitate to go back for more help. The SBDC was prepared to help us with all aspects of a small-business start-up, including financing, business plan, marketing plan, cash flow, and so on."

LOAN GUARANTEES

The SBA makes very few direct loans (Reagan gutted the direct-loan program), but it does guarantee business loan as a last resort, when a bank won't lend any other way. Direct loans, which account for about 2 percent of the SBA's budget, are still available to disabled Vietnam vets and businesses owned by the handicapped.

In 1991, the SBA guaranteed 20,607 loans totaling about $4 million. The SBA steps in when the lending bank feels the borrower doesn't have enough collateral to back the loan. The SBA guarantees the lending bank that it will make good on 75 to 90 percent of a loan (with an upper limit of $750,000) should the borrower default. However, home-based service businesses, with relatively minor real estate or equipment collateral, have found it difficult to get SBA loan guarantees. That's why many home-based service businesses think the SBA can do nothing for them. To make things worse, the national credit crunch has forced the SBA to crack down on a borrower's equity requirements.

"They've tightened up on the loans quite a bit here in Montana," says Lee E. Gustafson, a private consultant to the SBA in Billings. "It used to be you had to have 20 percent equity; now you've got to have more like 40 percent."

Joseph A. Branca, a development consultant in New Rochelle, New York, who tries to help clients get SBA guarantees, says, "Granted, their loan losses are up because of the recession. But that's their role; that's what they were set up to do. Now's the time for the SBA to let the reins out, and they're going in the other direction."

To answer critics, the SBA retorts that it has increased lending in 1992. "Our volume is up about 26 percent over the first quarter of last year," says Charles R. Hertzberg, assistant administrator for financial assistance at the SBA. "We believe that we're in a countercyclical mode."

Hertzberg also contends that the SBA's new parsimony is actually a help to borrowers. "When we make a loan, the borrower is pledging collateral; we get a personal guarantee. If we were to approve loans on a looser basis, we'd be putting the borrower's home in danger, his personal guarantee in danger. We're not doing him or anyone else a favor by approving a loan we don't think can be repaid."