The Benefits And Advantages Of Considering An SBA Loan For Financing: Interview with Jevaughn Sterling, SBA Group Manager
Jevaughn Sterling is a Senior Vice President at Amegy Bank. His
primary responsibility is to lead the SBA Department team and its
loan processes that help small businesses obtain financing to start
and grow a business using a government-backed loan from the
Small Business Administration (SBA).
At some stage, a small business is ready to launch, take next steps, or to
become a big business. But the company needs financing to get to
that next level. That’s where Amegy comes in. “The team of SBA
Lenders here at Amegy partner with their Relationship Managers to assess
small businesses lending needs,” Sterling explained. “Coordination
between the SBA Lenders who serve as the subject matter experts and the
relationship managers whose clients they serve is essential to developing
appropriate loan structures and providing a full range of banking services.
Then The Pizza Arrived
As we were getting started in this interview, I asked Jevaughn what he likes most about his job………then, the pizza arrived. “I receive satisfaction when our team plays an important role in helping businesses succeed,” Sterling explained, just as a stack of pizzas arrived at the Amegy SBA office, delivered by the owner of Jets Pizza in gratitude for Amegy’ s assistance in starting his business.
“The Jet’s Pizza franchise in the Pearland/Friendswood market is part of a Michigan based franchise with 300 stores throughout thirteen states.”
“This will be one of the first franchisee locations to penetrate the Houston market. The owners had past food service experiences, and relocated from Michigan. In less than 3 months of operation, the company is already planning its 2nd location in Clear Lake. And the pizza was delicious!”
Where does my business find start up services and financing?
Sterling explained the role Amegy plays in helping small business grow with the help of Amegy, the SBA, and the variety of programs the SBA offers.
“The SBA 7a Loan Programs provide startup capital for pre-opening expenses, general and administrative expenses, inventories, as well as fixed assets such as equipment and real estate. The SBA 504 loans provide financing for fixed assets and real estate. Participating SBA lenders like Amegy provide the loan funds and receive loan guaranties of up to 85% from the US Small Business Administration, which is a strong incentive for banks to help fund new businesses.”
“This works to the advantage of entrepreneurs with a great business idea and plans, but limited means of financing those plans.
Growing a business is often a challenge, but a small business with a record of growth, can obtain an SBA-backed loan.
The Amegy SBA team has extensive experience working with small businesses. They know the process and how to preserve the SBA guarantee that makes banks eager to loan start-up capital.
But where do you, the entrepreneur, start?
“An established business should approach their bank relationship manager to begin loan discussions. The first step is being able to clearly define and articulate the need for the loan. Beyond having a general idea of what funds are needed, the borrower has to provide a detailed analysis and documentation for what is driving the need for capital and how the loan will be repaid.
The banker and borrower need to understand how the timing of collection of receivables, paying for inventory, and meeting general and administrative expenses factor into the need and the amount of the loan. The clearer the picture presented upfront, the smoother the loan process can unfold and benefit the borrower,” Sterling explained
Whether the growth strategy is within the same line of business or involves expansion into a new business, the bank typically requires a business plan, financial projections, management resumes, personal tax returns and personal financial statements for all owners.
Need help getting that great business idea up and running?
“To fulfill its counseling mission, the US Small Business Administration partners with organizations such as SCORE, Service Corps of Retired Executives), and Small Business Development Centers, such as the one at the University of Houston, to provide direct technical assistance to small businesses.
“Since banks cannot provide technical assistance to businesses on a business plan that it underwrites, the counseling resources that are offered by the SBA and its partners serve an important role in helping small businesses. with market research and business planning to improve their chances of being approved for a loan.
The process of evaluating a borrower’s credit worthiness.
So, what does the SBA look for in a business to determine its credit-worthiness?” “The bank will assess the borrower’s credit worthiness by evaluating several factors including, personal and business credit scores, legal history, past and present management history, business financial statements, and an evaluation of the industry outlook,” Sterling said.
“These factors collectively are weighted into the final credit decision.
What are the advantages of an SBA loan versus other small business funding?
“Borrowers may qualify for lower down payments as low as 10%. Through the SBA 504 loan program, borrowers can purchase real estate for company operations with less money down than non-SBA loans. The ability to provide less money down preserves working capital for company operations.
“The borrower will benefit from lower debt service requirements as a result of longer repayment terms. Using SBA terms, borrowers can obtain financing for working capital for up to 7 years, business purchases up to 10 years, and real estate up to 25 years. Longer loan repayment terms help the company’s cash flow and the cash flow savings can serve as additional working capital for the business.
“Under SBA rules, Banks have flexible collateral parameters, where the lack of collateral is not the sole reason to decline the loan. As a result service based, retail, and cash based business owners are able to qualify for loans if their cash flow can support loan repayment.
“With competitive interest rates, rates on SBA loans may be fixed for up to 20 years. With the ability to fix interest rates through loan maturity, SBA loans can protect borrowers’ cash flow from higher future loan payments that may arise when rates increase.
“With Flexible Reporting Requirements, SBA loans allow businesses to focus on their operations, and maintaining fewer of the bank’s loan agreement requirements. The loan agreements for non-SBA loans contain provisions for financial reporting as well as loan covenants that must be maintained. SBA loan agreements contain fewer requirements, which simplifies loan compliance for borrowers.
What are the most common misconceptions small business owners and execs have about the SBA?
“SBA has been around since 1953, but this is not your grandfathers’ SBA. Over the last decade, SBA has increased incentives, centralized SBA loan guaranty processing into small numbers of service centers, implemented credit scoring, electronic application processing , electronic signatures on SBA forms, and consolidated application forms. All together, these have resulted in shorter, less tedious application processing.. The results are seen in increase loan production and job creation. Since the recession in 2009, gross SBA loan approvals have increased 87% to over $26 billion. In 2014, the SBA 7a and 504 loan programs supported nearly 600,000 jobs across the country. . Furthermore, the agency is self-described as Smart Bold and Accessible in an effort to change a generation worth of perceptions about government bureaucracy.
“When a business receives an SBA guaranteed loan from the bank, there is no government interference in their business and personal lives. Also, “when lenders recommend an SBA loan, borrowers’ will learn that SBA loans are for credit worthy borrowers and persons of good moral character. Borrowers who carefully consider the SBA loan program merits often find that SBA loans are better options and appreciate their banker considering various options to meet their needs.
What are the most important question small business owners and execs should ask themselves before contacting you?
“Am I committed to the loan process? Where borrowers have experienced success in the loan process, they demonstrate a commitment to the layers of the loan process. Rather than perceiving the process as invasive, borrowers should perceive the process as an opportunity to form a long term relationship with their banker.
Sterling concluded, “Call your banker and have a discussion.
“Tell the banker, here’s how my business operates and help the banker understand your needs.
Call Amegy Bank to discuss your business’ financial needs and available options for capitalizing your business through the Small Business Administration loan programs offered by the SBA team at Amegy.
Loans subject to credit approval. Terms and conditions apply.
Cyber Security: Are You On Guard?
Online and off-line data security continues to challenge large and
small businesses, costing companies money – real money. And
unlike consumer fraud protection, businesses do not enjoy the
same protection when they experience fraud on their commercial
bank accounts, so knowing their liability and responsibility when
dealing with cyber fraud is critical.
Businesses need to have controls in place, monitor transactions
using online and mobile banking services, create and follow
transactional movement protocols to move company revenues
between accounts, and keep their anti-virus software up-to-date.
Data Theft: It’s So Easy if Not Treated as a High Priority
Take for Example Two Amegy Companies:
Example Company A
A Zeus virus was maliciously inserted into the company system enabling the infiltrator to alter wiring instructions entered by a company employee. To defeat the fraudster, the company effectively used dual control. A second person carefully and thoughtfully reviewed the transaction using a separate login at another computer. Having determined that the information had been changed, the client contacted the bank. In this single attack, over $99,000 was placed at risk.
Example Company B
In another battle, this company received an email that appeared to be from a company executive. The person who received the email entered a wire transfer for nearly $32,000 as requested in the email. Another person reviewed the transaction and contacted the executive by phone to validate the request. Once again, dual control prevented the transfer and loss of significant funds.
What does this mean for business owners?
Combatting cyber fraud is crucial to protecting your business, and dual control is a fundamental weapon in cyber warfare. Dual control is an armament against fraud, security breaches, conflicts of interest, and errors.
Amegy Bank strongly recommends that your arsenal include dual control for executing payments and for maintaining user credentials in online systems. Dual control for online money movement, file transfers, and user entitlements is a version of the classic accounting security - separation of duties. It requires two sets of security credentials (generally, two people with unique Ids and passwords) to participate in gaining authorized access to a system resource.
If fighting fraud attempts fits into your strategy, try these tactics:
Separate payment initiation and approval. These tasks should be performed by separate individuals at separate computers. Even if your company entrusts one person with making payments, separating the process into two tasks will mitigate risk since this tactic prohibits a hacker from executing a virus on a single machine to change and submit a payment.
Ensure the security token (or similar software) used to log into a system to initiate payments is a separate token from the one used to approve the payments.
Separate the initial set up and maintenance of users and entitlements into two tasks: entry and approval. This will prohibit one person from being able to set up a fictitious user along with potentially fraudulent money movement templates.
Ensure file uploads and imports are done with dual control (import/upload with separate approval).
Recent skirmishes in the war against cyber fraud include hacking into a system, introducing a virus through an email message, and disguising an email address (changing one letter) to look like it came from a company executive. Along with dual control, be armed with callbacks to known telephone numbers to verify all payment instructions.
As new battles are instigated by our cyber foes, Amegy Bank is committed to joining forces with you to ensure the safest environment possible. Please do not hesitate to engage us. We can provide the answers you need and offer product and services that help reduce your risk, like Amegy Positive Pay, a service that protects companies against check fraud. Without your “say-so” assets stay put.
You can also download IBM® Security Trusteer RapportTM, a security software application that works with your antivirus and firewall software as an added layer of security. Download for free by visiting www.amegybank.com/Trusteer today!
That’s Amegy Bank. Call today. Let’s work together to protect your company assets.