Arkansas Capital Corp. Bridges Borrowing Gap (Bottom Line by Robert Bell)

Money is the lifeblood of a small business. When business owners need a transfusion for a major operation – whether startup, a major acquisition or new equipment – many turn to Small Business Administration loans.

The SBA 7(a) loan is probably the most common type of loan small business owners take. It is a flexible loan that can be used for a variety of different purposes by many types of businesses.

Business types that are ineligible for 7(a) loans include most businesses that involve gambling, real estate development firms, lenders and religious, charitable or nonprofit organizations.

The maximum amount a borrower can get with a 7(a) is $2 million, while the maximum amount guaranteed by the SBA is $1.5 million.

An SBA 504 is a different type of loan, used to help growing small businesses with big-ticket expenses such as land, equipment, buildings, construction and other fixed assets.

Arkansas Capital Corp. has helped scores of Arkansas small business owners get loans, including 7(a) and 504 loans. The nonprofit business development corporation made 20 7(a) loans in 2007, totaling $10.6 million and 39 different 504 loans totaling $23.36 million.

Arkansas-based lenders made more than 300 SBA loans in 2007 totaling more than $83.7 million.

The 504 loan is structured differently than the 7(a). The minimum amount a borrower can get with the loan is $50,000, while the maximum is typically $1.5 million.

“It is required that the borrower make 10 percent equity injection,” said Jake Haak, business development officer for Northwest Arkansas. The bank provides 50 percent of the loan amount, and ACC loans up to 40 percent of the remainder.

The loans are good for both the borrower and the bank. The borrower gets a fully amortized, 10-year or 20-year loan with no call features or balloon payments at a fixed, below-market interest rate.

This type of loan can really help maintain cash flow for a small business, Haak said. The bank gets a 50 percent first lien on the loan and a long-term relationship.

 

ASBDC Helps Find Funds

For “Italian Fast Casual”

The Arkansas Small Business Development Center also helps connect entrepreneurs with lenders.

Robert Lee got help from the ASBDC office at the University of Arkansas with a 7(a) loan from Liberty Bank of Arkansas for his new restaurant.

Spiedini Italian Grill opened in Bentonville on Valentine’s Day and specializes in “Italian fast casual,” Lee said.

Lee is a 25-year veteran of the restaurant business. He worked for a major Arby’s franchise for 22 years and managed a Cracker Barrel for three.

Getting a 7(a) “is a pretty daunting process,” he said. “But it’s worth it, because it takes care of the initial equipment purchases, improvements and working capital.”

Not all banks specialize in 7(a) loans. What sold Liberty Bank on the loan to Lee were his business plan and his many years of experience, he said.

Most people who open restaurants don’t have a clear picture of the long hours of work it takes, and many just think it will be an instant moneymaker, Lee said, adding that about 90 percent of restaurants fail within the first two years.

Potential restaurateurs need to be realistic when seeking a loan, and add another 20 percent on top of what they think they’ll need, Lee said. This will help with the “what-ifs” that inevitably pop up.

“And we got hit with more what-ifs than I could tell you,” he said.