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October 11, 2008

Local small business loans continue in spite fo credit crises and hurricane

By David Ball

PORT ARTHUR — Despite the credit crisis that has gripped many financial institutions and slowed lending for commercial expansion, the National Association of Development Companies is assuring small business entrepreneurs that the Small Business Administration, SBA 504 loans are still available for qualified small businesses during these turbulent economic times, according to a press release from SBAlliance Capital.

“The credit crisis has not frozen the SBA 504 loans program and loans are still available for businesses seeking to expand through real estate acquisition, or simply adding on to their existing facilities, or needing to make large equipment purchases,” Christopher Crawford, NADCO president, said. “Certified Development Companies (CDCs), our banking partners and the SBA are doing business as usual and will continue to do so for the long haul. The 504 loans provide a steady source of new long-term capital at a fixed rate, and frequently with only 10 percent down on a new project for a small business, helping to conserve cash for operating expenses.”

Jim Rich, director of the Greater Beaumont Chamber of Commerce said these loans have been used regionally in Southeast Texas for years to develop businesses such as Sanderson’s Restaurant in Nederland, MegaPlay USA in Port Arthur and Red Apple Day Care in Groves. In fact, he believes the SBA 504 loans may become more plenteous in the area after Hurricane Ike because of need.

“These loans are used for real estate or to purchase a major piece of equipment. It’s two loans with 50 percent underwritten and the SBA with the other 40 percent,” Rich said. “These loans are bundled once a month and sold to investors who buy them and that’s how the interest rate is determined. Borrowers can get the loans at a low interest rate for a longer period of time to extend the payments.”

He added a borrower needs a bank account before any loans are underwritten.

Crawfore continued saying a vacant commercial property in a neighborhood can represent an opportunity for a small business owner who needs more space and now may be the perfect time to consider expanding into that larger facility, or simply seizing the chance to buy that first facility for a thriving small business at a very advantageous price.

In fact, according to their release, the intent of SBA loans is to provide access to capital for small businesses that might not otherwise be available through regular capital market channels. When the economy is strong and access to capital is a relatively easy, there is typically less demand for SBA financing. In the case of SBA 504 loan, a private sector lender partners with a CDC to provide financing for the purchase, construction or renovation of owner-occupied commercial real estate. Use of the SBA 504 loan tends to become increasingly important as a source of longterm financing when traditional sources of money decline as they have in recent months.

“These loans are a way to finance a program or use them for rebuilding. Some businesses after the hurricane said, ‘Hey, we were going to expand anyway, so let’s go ahead,’” Rich said.

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