SBA Loan Hinges on
Business Plan
February 23, 2004
Bill Bowden
www.hispanicbusiness.com
Having bad credit is one thing, but having a
bad business plan is an even bigger problem.
"It's harder to overcome a bad business plan than
it is to overcome some challenges to your credit,"
said Lance Sexton, vice president/commercial loan
officer at Simmons First Bank in Springdale.
"Ideally, you would like for both things to be in
place."
If an entrepreneur walked into Sexton's office
with the best business idea in the world, Sexton
said he would direct that person to the Small
Business Development Center at the University of
Arkansas in Fayetteville to get help writing a
business plan.
"As a banker, I want to see a good, written
business plan and a set of financial statements,"
Sexton said. "Quite often, an applicant will bring
that in, but usually they won't come in with
everything they need.
"Most entrepreneurs are people with good ideas,
but sometimes they have difficulty putting those
ideas into writing. At some point, they have to
sit down and turn those ideas into words and
numbers, and that's where the Small Business
Development Center comes in. Here at the bank, we
need to see those financial statements and a
business plan that tells the story."
Sexton has only been a banker since Jan. 1. For
the six years before that, he was director of the
SBDC in Fayetteville, where, among other things,
he became somewhat of an expert at helping
businesses apply for loans guaranteed by the
federal Small Business Administration.
The SBA guarantees loans to small businesses that
qualify.
"Ninety-eight percent of all businesses are small
businesses by our standards," said Jim Coffey, a
loan officer and spokesman for the SBA in Little
Rock.
About 24 percent of startup businesses are still
operating five years later, Sexton said, referring
to a 2001 study. That's up from 20 percent in
1995.
"Historically, businesses that are started with
SBA loans have a better success rate than
businesses that are started without SBA loans,"
Coffey said.
The SBA guarantee usually covers 75 percent to 80
percent of the loan amount. The business must pay
an SBA guarantee fee that usually runs about 2
percent of the loan amount.
Banks actually make the loans, but the risk is
split between the bank and the SBA, with the SBA
taking the majority of the risk. Interest rates on
SBA-backed loans are currently 6.75 percent at
Simmons First. The business receiving the loan is
usually expected to invest at least 20 percent of
its own money.
"Banks like to see a small-business person sharing
the risk," Sexton said. "I think it's unreasonable
for a person to come up with the idea and expect
the bank to take all the risk. By sharing the
risk, the financial institution knows that person
is going to work harder to make that business
succeed. A business where the owner is the manager
has a better chance to succeed."
Getting Started
Before working for the SBDC in Fayetteville,
Sexton spent nine years with the state SBDC office
at the University of Arkansas at Little Rock and
operated his own business, Sexton Electronics in
Clarksville, for six years. There are five other
SBDC offices at universities across the state.
"I've spent 15 years of my life helping small
businesses get SBA loans and USDA loans and other
types of small-business financing," Sexton said.
"Over that 15-year period, I've helped clients get
over $300 million of financing through those
programs."
Sexton's clients at the UA included Beta Rubicon,
a technology consulting firm owned by Ron Goforth
of Fayetteville; Acambaro restaurants, now a chain
of 14 area eateries owned by the Reyes family; and
Luxe, a salon in Rogers owned by Juliet Ballinger.
"She understands the importance of selling
products in a salon because that's where most of
the profit comes from," Sexton said.
It's beaten into business students from day one,
but Sexton said it's true: Location is "critical."
"You can take a good business and put it in a bad
location, and it'll fail," Sexton said. "You can
take a bad business and put it in a good location,
and it'll do well."
Businesses shouldn't try to locate where several
others have failed.
"Any time there have been multiple tenants, you
need to turn around and run the other direction,"
Sexton said.
Sexton, who teaches courses on entrepreneurship at
the UA's Wallon College of Business, said many
people tell him they want to start their own
business so they can free up their time. That's
the wrong reason to start a business, he said.
With new businesses, the owner often has to put in
long hours to make the venture succeed.
"Those are things you don't get in a small
business until later," Sexton said of the
free-time folly.
But, small-business owners do get control over
their destiny.
"There are parts of it I miss," Sexton said.
"Being able to control your destiny through
working harder … Those profits belong to you. The
main thing is knowing that the decisions you make
will have an impact on your financial well-being,
good or bad."
Sexton said Simmons First is working "to provide
an exceptional level of service to small-business
owners."
"My sole purpose in life is not just to do SBA
loans," Sexton said, "but those people needing SBA
loans - I want them to come to me."
Sexton said there's stability with an SBA loan
because the recipient can stay with the same bank
throughout the term of the loan, even if the bank
merges with another institution.
"With the SBA, once you do the loan, it's done,"
Sexton said. "You still have to monitor financial
information, but you don't have to go in once a
year and redo the paperwork."
504 Loan Program
The SBA's 504 Loan Program provides long-term
loans for fixed assets such as land, buildings and
equipment. Startups as well as expanding
businesses can quality for 504 loans.
Arkansas Capital Corporation Group, the largest
SBA and non-bank lender in the state, does 504
loans through its affiliate Arkansas Certified
Development Corp.
ACCG was founded in 1957 as First Arkansas
Development Finance Corp. to help the state
transform from an agricultural to an industrial
economy. The ACCG has made hundreds of loans
representing projects worth more than $500
million.
Benefits of a 504 loan include up to 90 percent
financing for fixed assets, including associated
soft costs; 10- or 20-year terms, fully amortized,
no balloons or call features; fixed, below-market
interest rates; minimized down-payment
requirements; and increased cash flow through
extended repayment terms.
The 504 Loan Program is explained in more depth on
the ACDC's Web site at
http://acdc.arcapital.com.
Source: (C) 2004 Northwest Arkansas
Business Journal. via ProQuest Information and
Learning Company; All Rights Reserved
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