SBA Funding More Accessible

In an effort to encourage small business growth, the kind of growth that will eventually pull America out of this recession, President Barack Obama wants to make it easier for small business owners to secure SBA-backed loans to start or further their businesses.
Provisions in the recently passed American Recovery and Reinvestment Act provisions would accomplish that, said Sean Kouplen, CEO of Regent Bank.
“Small Business Administration programs have improved drastically over the last 90 days,” Kouplen said. “It used to be very expensive for a small business to get an SBA loan. On average, approximately 2 percent of the loan amount would be the fee they would pay to get the loan.”
So, if an entrepreneur wanted to take out a loan for $1 million, he or she would have to pay $20,000 in SBA fees, which don’t include bank fees and other up-front costs associated with acquiring a loan.
“That deterred a lot of business owners going (the SBA route). Those fees are now basically gone,” Kouplen said. “Part of the stimulus package has gone to allaying those fees, where basically businesses don’t have to pay those anymore. There are still some costs involved; we have some fees frankly just because it costs money to put a loan on the books, but it is substantially lower (than it used to be).”
In addition to reducing the fees required to obtain an SBA loan, the act also increased the Small Business Administration’s backing of its loans. Formerly, SBA loans were backed 75 to 80 percent by the government, depending on the type and amount of the loan. Now, they are backed 90 percent, meaning that if an individual is unable to pay the loan, once the bank repossesses and cashes in on the collateral used to obtain the loan, the government will reimburse the bank for 90 percent of the fallout, leaving it with a loss of 10 percent.
The bank still makes the loan, but the government insures it up to 90 percent.
“You cannot make loans, as a bank, just because of the SBA guarantee, but it helps immensely,” said Kouplen.
It allows the bank to make loans it might not otherwise be able to make.
“A bank likes to see three things when it makes a loan: Good credit, good cash flow and good collateral,” said Kouplen. “If you can get all three of those, you make a loan, Typically, if you cannot get all three of those, you don’t make a loan.
“Someone could come in with great credit, great cash flow, but they don’t have collateral. This SBA program will allow you to make the loan now because that 90 percent that (the government is) guaranteeing acts as the collateral.”
Kouplen said that, before the American Recovery and Reinvestment Act was passed, Regent Bank made between eight and 10 SBA loans, out of 40 total business loans, during a typical month. Since the act has passed, the number of SBA loans the bank has in the works has doubled.
He said the non-SBA loans Regent Bank has given have dropped about 20 percent.
“That is not because there isn’t demand out there, but because regulation has tightened, and our regulators want to see more financial strength in borrowers,” said Kouplen. “And many businesses frankly had a rough fourth quarter of 2008 and a rough first quarter of 2009, and when you begin looking at those trends, part of making a loan to someone is projecting future cash flow and determining whether they can make the payments necessary for that loan. And unfortunately, when you’re looking at two consecutive either decreasing or negative cash flow quarters, it’s just hard to make those projections work and have the confidence to make the loan. The truth is, you hate to say this, but nobody wants to jump on a sinking ship. And so it makes it more difficult to make non-guaranteed loans.”
Kouplen said the number of home mortgage loans Regent Bank has made for homes $300,000 and up have substantially decreased. The increase in SBA-guaranteed loans has helped fill in the gap left by mortgage and non-SBA loans.
For information on the American Recovery and Reinvestment Act and its effect on small business, visit

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