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SBA lending hikes back from depths of recession.

After suffering a huge blow from the Great Recession, the U.S. Small Business Administration's lending assistance program is working its way back to health.

The SBA stands between business owners and lenders, helping mitigate risk by absorbing 75 to 90 percent of the potential loss. But banks have been less likely to work with the SBA since the recession.

"We're not quite there yet in Arkansas," said District Director Linda Nelson. Part of the problem, she said, is that lenders are still working through Dodd-Frankimposed regulations. (See related story, Page 12.)

"The positive side of me hopes that it will be manageable for them, and it might steer them to use the SBA more often than not," she said.

Smaller banks, she said, often need direct SBA assistance in getting a loan through because they only process them once or twice each year. The process of obtaining SBA approval isn't exactly easy. Hazel Dillehay, owner of Hot Springs Medical Rental, financed her loan in August through Southern Bancorp of Arkadelphia and said the toughest part of SBA approval was the paperwork.

"It took three months," she said. "We went out to gather information from the previous owner, getting lots of paperwork--tax reports, tax statements, profit-loss statements."

Another difficulty, especially for startups, is proof of cash flow. Rose Schweikhart Cranson, for example, is opening a brewery and distillery in the historic Superior Bathhouse on Bathhouse Row in Hot Springs. About 67 percent of her loan is coming from the SBA.

In addition to jumping through National Register for Historic Places hoops, Cranson also had to prove she will have any cash flow at all.

"I had to create projections," she said. "I had a few hiccups during the review process, but my business plan caused them to approve the loan. It was almost a 60-page business plan."

Since Oct. 1, the beginning of the SBA's fiscal year, the organization has secured 115 loans in Arkansas for a little more than $49 million.

"It's down from the previous year at the same time," Nelson said. She noted that 39 percent of the loans this year had been for new businesses. "There is a lot more interest in entrepreneurship in general," Nelson said.

The average SBA loan amount this year is $495,000. It can be bigger: In 2010, Jimmy Threet funded 90 percent of Arkansas Genomics, a DNA testing lab in Little Rock, with a $600,000 SBA loan.

"I don't know if I could have secured financing without SBA backing," he said.

The 2010 Jobs Act increased the maximum SBA loan amount from $2 million to $5 million, Nelson said.

For the SBA situation to be optimum, Nelson said, banks should have departments dedicated to SBA lending assistance. Some already do, like Arvest Bank of Fayetteville and Centennial Bank of Conway.

"That core needs to understand pretty much all the fundamentals of the program," she said, "underwriting, eligibility, documentation, monthly reporting, servicing expectations, and/or liquidation, if that should occur."

Expert Advice

Linda Nelson, district director, U.S. Small Business Administration Arkansas District Office

If you're planning on getting approved for SBA lending assistance, what should you do?

There's one key question. "Do you do SBA lending?" If you make it past that, and the banks say yes to everything else, but you're still turned down, be sure to find out why.

Do your homework beforehand. Have a business plan. Somewhere in that plan should be a what-if plan, a plan B. Then do some research about the tenders. You want that lender to be a relationship lender. It's ongoing. It's not, "I got the money. Thanks. Don't call me. I'll call you." They don't like surprises. If you're not doing as well as you expected, they would like to hear sooner than later. There are some things they can do if they hear from you sooner.

By Luke Jones
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Title Annotation:SPOTLIGHT: Baking & Finance
Author:Jones, Luke
Publication:Arkansas Business
Date:May 7, 2012
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