BUSINESS SPOTLIGHT TEXT Kevin Tenpas, President, and Ron Markham, Market President–Monroe, Wisconsin Bank & Trust
Businesses
Embracing Fixed-Rate Financing The current economic recovery is uneven. Some industries are faring much better than others. In this uncertain environment, we’re seeing many businesses putting in place long-term financing for their operations and anticipated growth. That’s a trend that makes economic sense. Committed financing helps businesses weather hard times, such as 2008-2009. Many of our clients who put in place 15- to 20-year financing packages at that time are pleased they are not facing, three years later, required balloon payments and the need to refinance. The economy is healthier now, but here’s a good question to ask now, as then: “Do you want to renew your loan three years from now, possibly in a recession, or to have in place long-term committed financing?” Long-term financing also means lower demands on cash flow, which in turn allows businesses to reinvest more dollars back into the business — and to be ready to take advantage of growth opportunities as they emerge. For business owners in some industries, this is actually an ideal time to borrow to grow their businesses. Interest rates remain low despite continuing signs of economic growth. The Federal Reserve has signaled its intention to keep rates down until at least 2015. Many business owners we meet who are considering floating-rate commercial loans are a little more comfortable taking on a loan given the assurance that rates will remain low. What’s more, many loan programs are available at fixed rates — in some cases, even for periods of 15-20 years. Following is an overview of loan programs business owners in Wisconsin should be familiar with as they consider taking on financing for a project. In some cases, loan terms are especially attractive due to governmental support for the program.
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SBA Loans. Of federal loan programs available to small business owners, those from the Small Business Administration are probably the best known. Businesses can secure guaranteed long-term financing through the SBA program, easing demands on cash flow compared to a short-term note — and therefore provide “staying power” through economic cycles. One common misperception is that SBA loans are just for “small” companies: qualifying manufacturing firms, for example, can have up to 500 employees, far beyond the size of a “mom and pop” operation! Retail and service companies are limited to a maximum of $5 million in sales. The popular SBA 7(a) program can be used to finance construction, expansion or renovation, equipment needs, working capital and inventory support. Loans for specific fixed assets are available through the SBA’s “504 Loan” program, which can provide up to $5 million for equipment, machinery and real estate. USDA Rural Development Loans. While SBA loans are known to many people, USDA programs are less well-known and can be even more attractive, depending on a business’s particular circumstances. The Rural Development Loan program is available to businesses operating in communities of up to 50,000 people and offers a maximum loan amount of $10 million per borrower. Specifics of the USDA program allow for extended amortizations that reflect actual useful life of financed assets, often giving borrowers greater flexibility and liquidity compared to other options. Most importantly, this loan program is available on a long-term committed basis — with no balloon payments and the option for long-term fixed rates. Over the past few years, we have been among the country’s top lenders in the USDA program, which is a natural for many of our clients given long-term financing and, in many cases, lower up-front fees than SBA loans. Farm Service Agency (FSA) Loans. The FSA is an agency within the USDA that supports loans specifically tailored for agricultural