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One Small Business to Another

5/19/2014

When Donna Hamilton and I meet with clients, especially ones we do not see often, they often mistakenly say “Oh yeah, you guys work for the SBA.” When I hear that I cringe just a little. The SBA, or Small Business Administration, has been a boon to small business growth in the United States and very nearly or completely pays for its existence every year. The way it collateralizes loans or assumes part of the lending risk has helped thousands of business either get started or expand. It is a good program from the federal government and it works. However, hearing those words “You work for the SBA” still gets under my skin.

Enterprise Development is a not-for-profit privately held corporation. We are a small business and have all of the issues and problems that every other small business faces. Basically, Enterprise Development contracts with the SBA to service loans. We don’t get paid until the loan is approved and closed. We then get closing fees and monthly servicing fees. Out of that revenue comes salaries and benefits (kids got to eat), rent and utilities (got to stay dry and warm), telephone and Internet (so we can talk to our clients) and so on. As you can see, this is a small business and as a small business we face the same issues that our clients face every month.

With this information in mind, it is easy to see how changes in our loan portfolio can seriously affect the organizations bottom line. Every time a client prepays a loan or does not make a monthly payment, our revenue decreases. Conversely, every time we close a new loan revenue increases. Revenue minus expenses equals net profit. We understand this basic business equation because we live it every day.

I think this information is important for all of our borrowers and potential borrowers to know because it will hopefully show them that we empathize with them and what they are trying to accomplish. We have probably experienced many similar problems and celebrated similar victories. We have no one to bail us out if things don’t go well. We are a business… Just like you.

President Reagan said “The scariest words in the English language are..,”We are with the federal government and we are here to help.”” So when we meet with clients and say we are here to help, it should not be scary at all. Our success is completely entwined with their success. ..From one small business to another...

Mike Schrader

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Mythbusting and Monster Hunting

5/2/2014

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My 10 year old son Liam and I watch nearly every show we can about “monsters” in America. We both know that there is a ton of false information and fakery being spit out about by hucksters and charlatans. We also know that many of the people mean well, but they do not always use the best science to back up their claims.   However, there is still nothing funnier than watching Wild Bill from Mountain Monsters fall out of a tree or off of a crane every week. The cool part about Wild Bill is he always gets back up with a smile on his face.

Seeing folks chase, but never catch, Bigfoot, The Fire Dragon or the Werewolf of Webster County is great fun for us. However, watching these shows made me realize that there are some myths about the 504 Real Estate Advantage loan that keep getting perpetuated, but do not seem to get debunked.

Myth 1 Paperwork

The borrower actual has to complete very little paperwork to apply for the loan. A short application and a few brief forms are all that we require. We can use the rest of the information that the borrower provides to the bank. We make the application very easy.

Status: Debunked!

Myth 2 Dealing with Government

Though dealing with the government can be scary, the borrower does not have many dealings with the Feds in the 504 process. We handle all of the paperwork, all of the communications and all of the servicing. You deal only with Donna or me. Enterprise Development Corporation is not part of the SBA. It is a small business that has the same daily issues and pressures that the borrower does as a business owner. We have to make payroll, pay expenses and make sales. We understand the issues the borrower faces.

Status: Debunked!

Myth 3 Down Payment

Some people are still confused about the down payment required for the 504 Real Estate Advantage loan. If the facility is not for special use or if the business is a going concern and not a start-up, the down payment is usually 10%. This is smaller than other SBA loan requirements and it is also smaller than the down payment required by the bank. Even in times of increasing interest rates, the savings a borrower realizes on this small down payment is HUGE. It is still a great deal.

Status: Debunked!

Myth 4 Rising Interest Rates

Interest rates for the 504 Real Estate Advantage loan are rising. There is no debating that point. And, rising rates certainly make borrowing more expensive. However, since the interest rate offered for the 504 is fixed, the client has hedged the borrowing “gamble” by guaranteeing a known fixed payment every month. If rates continue to rise, as they have historically, the borrower still gets a great locked in payment for the life of the loan.

Status: Debunked

I hope this has answered some questions regarding the 504 loan and debunked some myths. Busting myths about the 504 Reals Estate Advantage is not nearly as fun as hearing a bigfoot hunter say “Sasquatch keeps coyotes as pets” (My son looked at me inquisitively when this was stated with earnest factualness, and then fell out of his chair laughing hysterically). I can, however, prove everything I have stated. By the way, I wonder if Bigfoot leashes his coyote on walks and scoops when the coyote does his business? Or maybe coyotes are intelligent and keep Bigfoot as a pet? I have too many deep thoughts and ponderings for a single blog.

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One Small Business to Another

Mythbusting and Monster Hunting

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