BUSI NE SS LE ND ING AT IT SB ES T.

Fi na nc in gi sa ne ce ss ar yc omponent of doin gb usiness. Whet he rs ta rt ingup, ex pand ing, ma ki ng an acqu isit ion, or pu rc ha si ng assets,capital is needed to ma ke it happen.

Most ba nksoffer busi ness lend ing, butt heydon’t all have the ex pert isea nd capabi lities to prov ide theappropriatefi na nc ing packagefor ever ysit uation .Ter ms andcondition sv ar y, and so do thet ypes of loan sava ilablefor certai nbusinesses and pu rp oses.There area lmos ta sm anyfi na nc ingopt ionsas therea re ty pesofbusinesses;t he rightlenderw ill uset heir sk ill andc reat iv it ytodevelop apla nt hathelps thei rc lient ac hievet heir goal srat hert ha nkeepi ng them up at night.

“That’swhy it ’s import antto work withan ex pe rienced lender whov iews your bu si ness as along-term pa rt nership insteadofa transact ion. Theyw ill focusmoreont he avai lable opport unities andhow theyfit into your overa ll planand ca nprovide gu idance that wi ll help yout hrough good ti mes andbad .”

Of cour se,o ther bu si nesses we re negative ly impacted by thepandemica nd arejust nowbeg inningtobui ld back .The serv icei ndust ry was pa rt ic ularly ha rd hit byreg ulat ions and laborissues. In ot heri ndust ries,supply chai ns brokedow n, di sr up ti ng bu si ness operat ion sa nd prevent ingt hemf rom

“From abanking standpoint,welookatyourhistor y, so if 2020 wasn’t thebestyear foryou duetoCOVID-19, what wasyourbusinesslikeprior to that year?”

Pa ndem ic Considerat ions

Despitew idespread uncer ta inty at theb eg in ni ng of the pandem ic,manybusinesses ac tu allyfared qu itewel l, such as cons tr uc tion andhomerenov at ionc ompa nies. Tho se busi nesses maynow wa nt to ex pa nd organ icallyort hrough acqu isit ions —ori nves tinother bu si ness en ha ncements. The additional liquid it ybroug ht on by federa lgover nment st imulus prog ra ms mean sban ks areready to lend andrates arefavorable. Butscr ut in izet he fu ll loan term sa nd en su re youa re work ingw it halenderwho ha syou rbes ti nteres tin mi nd rather thanthei rs.

“Ban ks have alot of liqu id it yr ig htnowsot heya re eagerto getloa ns on thebooks,but that also meanslenders maynot be doingevery thingt heycan to puttoget hert he best financi ng package,”saysColeKeney,sen iorbusinessadv isorat Aler us.

meet ingdemand. The Payc heck Protec tion Prog ra m(PPP)kept ma ny bu si nesses afloatduringt he wors toft hi ngs,but as thosef unds dw indlebusinesses st ill need capita ltorecover. It ca nbemorec ha llengi ng fort hose ty pesofbusinesses to obta in financi ng ,but noti mpossible.

“Fromaban ki ng standp oi nt,welookatyou rh is tory,soif 2020 wasn’ tt he best year foryou duetoCOV ID -19, wh at was your bu si ness li ke pr ior to that year?” says Ma rk Ya hna, senior bu si ness adv isor at Aler us.“If your bu si ness wa saPPP recipient, we’l lfac tort hati n, andt henwelookathow 2021 ha sbeen goi ng andhow youe xpec tt he rest of theyea rto perfor m. We’regoi ng to real ly lean on your pr iorh is tory and projec tion s, becauseweu nderstandt he pa st year or so has presented unprecedented ci rc um stances.”

Financing Options

Ever y lending request should star t with a conversation between thebusi ness ow ner and thei r advisor. From there, they ca n determine what options might be avai lable and if the lender ca n meet thei r needs. Not all lenders are the sa me Smal ler institutions may not have the capabi lity to meet la rge requests. National institutions may have the lending capacity but lack the personal connec tion or dr ive to put together the best possible financi ng package.

“A lender who is work ing int heir cl ient ’s best interest goes the ex tra step to find opportunities and introduce al l options to them,” Keneysays “If the right combination of financi ng includes other lend ing agencies, they wi ll ma ke referrals and introduc tions to orga nizations that ca n help and foster those relationsh ips for the client’s benefit.”

SBA Loan Resurgence

When bu si ness ow ners th in k about the SBA , ma ny now im me di ately thin k ab out PPP,but the SBA ha sa lon g histor y of prov id ing smal lbusi ness ow ners with at trac tive loan options.

“SBA loans ca n be inti midati ng forbusiness ow nersbecause there area va riet y of progra ms and they all have strict cr iteria and requ irements,” says JohnKimbal l, director of SBA lending at Aler us “Youshou ldn’ t have to become an expert inthe alphabet soup of SBA loan progra ms to benefit from them That ’s the lender’s job. When a lender has the correc t systems in place and the ex pertise to navigate SBAprograms, they ca n identify the best options quickly and prevent any surprises from happening at the closing table.”

For example, ba nks ca n collaborate with certified development compan ies (CDCs) to secure U.S. Smal l Business Administration (SBA)-backed 504 loans for fixed assetpu rc hases up to $12.5 mil lion . These ty pes of loans provide long-term, fixed-rate terms and requ irea smal ler down payment from the client than traditiona l loans,which ca n ma ke them an at trac tive option buildingpurchases or other expansion-related initiatives. There are el igibi lity requ irements and restrictions on what the loans ca n be used for, buta sk il led lenderca n help abusiness ow ner qu ic kly identify whether th is ty pe of loan is an option worth ex plor ing.

As a board member for Da kota Business Lending, North Da kota’s la rgest CDC, Keney is well-versed on CDC options as well as the cu rrent lend ing cl imate forbusi ness cl ients. CDCs have been busier than usua l in 2021 as business ow ners ta ke adva ntage of SBA incentives, includ inga guarantee fee wa iver that ru ns th rough September 30, 2021,but that ty pe of financi ng isn’ t right for ever yone

“There ca n be a litt lemore work involved inthose ty pes of pac kages and some borrowers si mply just don’ t need CDC financi ng ,” he says “The right lender wi ll be a tr ue busi ness pa rtner and identif y al l avai lable opportunities to produce the best combination of financi ng to help you succeed.”

SBA programs have enjoyeda recent resu rgence in popu la rity, due in part to PPP and helpedby incentives put in place th rough the CARES Ac t, wh ic h ma kes SBA loans even more at trac tive, says Kimball

“SBA loans prov ide stable, af fordable rate loans for the borrower, but the trade-of f has traditiona lly been a higher guarantee fee,” he says. “The fee ca n be financed, and the SBA uses those guarantee fees to finance the program,but the guarantee fee has been a deterrent for some borrowers. Waiv ing the guarantee fee th rough September 30 has had the intended ef fect of increasing interest inthe progra m. Additional ly, borrowers that meet the SBA dead li ne qual if y for up to th ree mont hs of wa ived loan payments.”

The range of businesses and loan pu rposes that may be eligible for SBA financi ng is also much broader than some may realize. Fi xed assetpu rc hases qual if y for some SBA programs, wh ile other progra ms are avai lable forbusinesses seeking capita l as they recover from thepandem ic, for example.

As acquisitions continue to be abusiness trend across many industries, Kimball points out SBA financing as a viable option to consider early on “Conventionalfinancing doesn’ t always work as well forbuyingabusiness because there may not be a lot of collateral and risk always increases when management changes,” he says.“SBA financing is designed to help banks reduce risk and guarantee loanswhen collateral is lacking, so they can be a great tool for someonewho wants to buyabusiness, buy outtheir partner, or acquire another business.”

They al so benefit the borrower Keney recent ly assi sted a cl ient in obta ining SBA financi ng to acqu ireabusi ness. In addition to the low down payment and low interest on the loan, Keney helped his client secu re payment wa ivers that saved nearly $30,000 over th ree mont hs “That is a sign if ic antsavi ngs and ma kesa real di fference inthe bottom line for th is client,” Keneysays.

Ya hn a al so re ce nt ly ut il iz ed the SBA’s 50 4 loan prog ra m an d comb ined it wi th ot he r lo ca l an d st ate fi na nc in g prog ra ms to he lp abu si ne ss cl ient ac qu ir eabu il di ng under enviable term s.

“My cl ient ru ns a specia lt y indu st rial bu si ness and had pu rc hased thebusi ness two years agobut didn’t yetow n thebu ildingwhere thebusi ness is located,” Ya hnasays “They were a good fit for the 504 progra m, butI knew there might be additional progra ms th is entrepreneurm ight qualif y for, so I did some digging. We were able to put together apac kage that included aninterest buydown grant using the Ba nk of Nor th Da kota’s Flex PACE program and the Grand Forks Grow th Fund, and an SBA 504 loan with Aler us financi ng That allowed my cl ient to complete a low interest $1 mi ll ionpu rc hase with just $100,000 up front.”

SBAprog ra ms li ke the 504 and 7(a)loa n prog ra ms ca n be very usef ul to entrepreneurs,but they ca nbe complex and ca n also be just one component of a la rger package, so it is important for SBA ex perts to jointhe conversationearly.

“We ca n help qu ic kly identi fy if the borrower wi ll qual if y, and if they don’ t, we ca n determi ne if there are steps they ca n ta ke to help improve thei r chances,” Ki mball says. “It’s important for busi ness ow ners toget answers qu ic kly and know thei r path forward.Ou r job is to know the options, matc h them withthebusi ness, ex plai n them to the client, and let them ma ke the decision.”

GettingStar ted

The first step for any bu si ness ow ner interested in a loan is to meet with an advisor. Theadv isor wi ll wa nt to review fi na nc ia ls, ide nt if y any shor tfa ll s, and unde rs ta nd the borrower ’s long-ter m goal s. The advisor then work s with the proper specia lists to ident if y all potent ia l opport unities. Establ ishedbusi ness ow ners seek ing financi ng shou ld be ready to disc uss thebusi ness ’ recent histor y and futu re. Ow ners shou ldremember to disc lose thei r busi ness pa rt ners and be fran k about thei r goals and plans so the advisor ca n help ma ke the best decisions for ever yone

Financia ls to review include:

• Ta x retu rns (past th ree years)

• Income statement (past th ree years)

• Ba la nce sheet (past th ree years)

• Person alfi na nc ia l statements for individu al sow ni ng 20% or more of the busi ness

• Personal ta xes (past th ree years)

• Busi ness plan with projec tions

If the business is a star t-up or otherw ise rely ing on projec ted cash flow to pay the loan, the lender may need to lean more heav ily on personal financial information since the business won’t have a perfor mance histor y yet. Ow ners may also be asked to supply a moredeta iled busi ness plan with shor ter and more frequent mi lestones. These steps help the financial institution evaluate the risk level of the loan,butit ’s also done withthe cl ient ’s best interest in mind Not on ly ca nit help prevent ta king on a loan that isn’ t feasible, going th rough the exercise ca n also help the ow ner identify more fir m busi ness goals.