Small Business Administration

The SBA offers two general types of financing. The SBA 504 CDC loan program, and the SBA 7a loan guaranty program.

SBA 504 Loan Program

The SBA 504 CDC loan program can provide long term, fixed asset financing to eligible small businesses for the acquisition, construction, purchase of long-life equipment, or expansion or renovation of land and buildings.

A loan form the SBA 504 CDC program is a loan resulting from a 100% SBA guarantee of a debenture sold to the Federal Financing Bank by a Certified Development Corporation (CDC) for up to 40% of the fixed asset costs of a project. With this type of loan there is a $1,000,000 participation limit for the SBA. The terms for an SBA 504 loan include the fact that a private financial institution must provide up to 50% of the project cost, while CDC will provide up to 40% of the cost. The principle borrower provides a minimum of 10% of the costs. In return for its participation in this loan, the SBA requires that a minimum of on e new job be created for every $35,000 with which it participates and that the assets purchased must be used by the small business.

The process of obtaining this type of loan involves submitting a proposal to a certified development corporation's loan committee, which then submits an application to the SBA.

Finance specialists from any one of the following four CDCs will assist the small business in packaging the loan application.

Alabama Community Development Corp.

ALACOM FINANCE
117 Southcrest Dr., Suite 100
Homewood , AL 35209
(205) 942-3360 (800) 239-5909
www.alacom.com

All counties in Alabama except, Choctaw, Sumter and Washington

Birmingham City Wide Local

Development Co.
710 North 20 th street
Birmingham , AL 35203
(205) 254-2799

City of Birmingham Only  

Southern Development Council

4104-c Wall Street
Montgomery , AL 36106
(334) 244-1801

All Counties in Alabama , SW Florida and Mississippi

Greater Mobile Development Corporation

205 Government Street
2 nd Floor, South Tower
Mobile , AL 36602
Phone: (334) 434-7591

Mobile & Baldwin Counties

SBA 7a Loan Program

The SBA 7a loan program can provide small businesses with long term financing for either fixed assets or working capital and has no specific job creation requirements. The SBA 7a Program is a guarantee of up to 80% of a bank loan not over $100,000, up to 75% maximum of $750,000 of a bank loan exceeding $100,000. The most attractive feature of the 7a program is that through its risk reduction to the bank, capital is made more accessible to the business.

Microloan, a 7(m) Loan Program

Provides short-term loans of up to $35,000 to small businesses and not-for-profit child-care centers for working capital or the purchase of inventory, supplies, furniture, fixtures, machinery and/or equipment. Proceeds cannot be used to pay existing debts or to purchase real estate. The SBA makes or guarantees a loan to an intermediary, who in turn, makes the microloan to the applicant. These organizations also provide management and technical assistance. The loans are not guaranteed by the SBA. The microloan program is available in selected locations in most states.  

CUSTOMER - Small businesses and not-for-profit child-care centers needing small-scale financing and technical assistance for start-up or expansion

DELIVERED THROUGH - Specially designated intermediary lenders (nonprofit organizations with experience in lending and in technical assistance)

www.sba.gov/financing/sbaloan/microloans.htm  

Additional SBA Programs

While the 504 and 7a type loans are the primary lending programs of the SBA, they do provide a number of other assistance programs. Theses additional loan programs includes:

• Low doc loan program;
• Export working capital programs;
• Contract lines of credit;
• Asset based lines of credit;
• International trade loans;
• Pollution control loans;
• Seasonal lines of credit
• Small general contractor financing;

Also, as part of the SBA's goal of helping to provide financing to small businesses, they license financial organizations to act as Small Business Investment Companies (SBIC). These SBIC's are very similar to venture capital companies and are privately owned and managed. For more information, please contact:

U.S. Small Business Administration
2121 8 th Avenue North, Suite 200
Birmingham , AL 35203-2398
(205) 731-1338

Southern Development Council - www.sdcinc.org

The Southern Development Council is a statewide, nonprofit, financial packaging corporation that helps small to medium size businesses arrange long-term, fixed asset financing so that these businesses can finance their expansion or location in Alabama .

The SDC utilizes both public financing programs and Alabama banks as sources for a financial package that is best suited to each firm's individual needs. The Staff of the SDC is experienced in both private bank financing and public finance programs. By using both of these types of financing, the SDC is able to put together a loan package that spreads the risk each lender must undertake, which results in safer loans for the banker. This in turn, allows the business to receive financing that a single lender is normally unable to provide. For more information on this financing opportunity feel free to contact the SDC at the following address:

Southern Development Council
4101-C Wall Street
Montgomery , AL 36106
(334) 264-5441

Rural U.S. Department of Agriculture-Rural Development

( Formerly Farmers Home Administration) www.rurdev.usda.gog

The U.S. Department of Agriculture (USDA), through the Rural Development state office, guarantees term loans to non-farming businesses in rural areas. The USDA Rural Development does not make direct loans under this program. The program offered by the USDA Rural Development is similar to that offered by the SBA 7a program but is larger in scope. The USDA Rural Development Business and Industry program offers guarantees up to 80% on loans between $750,000 and $10,000,000. One stipulation of the program is that those businesses that apply for this type of loan must be located in communities with populations under 50,000. Priority will be given to those communities with populations less than 25,000.

This program allows fixed assets to be financed for up to 30 years; machinery and equipment up to 15 years; and working capital up to 7 years. The USDA Rural Development requires existing businesses to provide 10% tangible balance sheet equity and new businesses must provide 20% -25% tangible balance sheet equity. Due to the fact that this is a public program, job creation and retention are priorities.

Another program that the USDA Rural Development offers is a program aimed at communities that provide low interest loans to finance water and waste infrastructure and other essential community facilities such as fire, rescue and public safety; health services; and community, social and cultural services. The interest rates for this program are based on the community's median family income.

The USDA Rural Development has a relatively new community program guaranteed program. Under this program, a guarantee will normally not exceed 80%; and loan purposes are the same as community program insured loans.

For more information on this financing opportunity, please contact:

Ronald D. Wyatt, Rural Development Manager
USDA Rural Development, Alabama Area 2:
Phone: (334) 793-7819

Private Financing

The major source of private financing is direct bank loans. These are loans that are negotiated directly with a bank and the terms of the loan are based on the bank's requirements.

The key to successfully obtaining a loan of this type is to be fully prepared before you ever talk to the banker. This preparation includes writing a detailed and accurate business plan. A good business plan tells the banker you are fully prepared to enter into this business opportunity and will increase his faith in your ability to make a success of the business.

It is estimated that 90% of all the prospective borrowers that come to a bank for a loan are not prepared. Since bankers do not have the time to do the research for the borrower, it is safest and easiest for them to say no. The following is a list of suggestions to help increase your chances of getting a loan:

• Prepare the detailed business plan complete with financial statements.
• Choose a bank that has a reputation for making small business loans.
• Make an appointment with the banker. Do not just walk in.
• Demonstrate you good character to the banker. This is one of the most crucial deciding factors.
• Know what type of loan you want and how much of a loan you will need.
• Be prepared to personally guarantee the loan or meet certain equity requirements.
• Be honest with the banker and answer all question openly and honestly.

Personal Savings

Another widely used source of funds is the savings of the entrepreneur. These savings and those of other family members are a viable source of funds and show future creditors that the owners of the business are willing to personally stand behind their business. This type of faith is what banks and other creditors like to see before lending money to any small business operation.

Another advantage to financing a business through personal or family savings it the fact that it is less risky than bank financing and it is also less costly. Reducing risk and expenses early in the life of a business are two factors that help to insure the long run success of a business. For these reasons, this financing option should be given every consideration.

Personal budgeting experience is another factor that bankers look for when they evaluate a person's loan potential. Those people who demonstrate that they can set up and follow a personal budget impress the banker as having the skill and experience necessary to develop and follow a budget for a business, which is critical factor in the success or failure of a business.

Due to the fact that budgeting is such an important part of the business cycle, it is recommended that anyone considering opening a business should develop a personal budget simply because it is good experience and bankers are impressed with those people who have budgeting experience.

Regional Revolving Loan Fund

The Southeast Alabama Regional Planning and Development Commission Revolving Loan Fund (RLF) is a locally controlled source of capital used to finance start-up and expanding businesses whose projects will create permanent jobs and leverage private sector investment. As borrowers repay their RLF loans, the principal and interest payments are returned to the fund for lending to other businesses to create more jobs and investment opportunities.

The businesses targeted for RLF financing are:

• Small manufacturing companies.
• Manufacturing related services.
• Developing services that have a uniqueness or technology that will add value to the regional economy.
• Other businesses that may help a community improve its development potential.

Generally, retail businesses are not eligible.

Proceeds from RLF loans can be used to:

• Purchase land and buildings.
• Construct new buildings or renovate/modify existing buildings.
• Purchase machinery & equipment.
• Provide for permanent working capital.

There are many advantages to utilizing the Southeast Alabama RLF for both borrowers and participating banks.

• Attractive Interest Rates
• Interest rates on RLF loans are generally below prime and determined by project needs. By combining RLF and bank financing, the borrower can realize an effective rate well below market rates.
• Bank Participation
• Local Control

The RLF was not established to compete with the banking community or to be a lender of last resort. Instead it was established to provide gap financing or "fill the gap" between what the bank can reasonably lend on a project and what the business can provide in equity. Also, by utilizing RLF dollars, banks may offer attractive financing packages that lower debt service. In short, the SEARP&DC RLF should compliment the lending activities of commercial banks.

The RLF program is a local economic development initiative. Loan decisions are made locally by the SEARP&DC RLF Loan Administration Board, which is representative of the regional community. This local emphasis means faster responses to loan requests and a minimum of "red tape" for you and your business. However, State and Federal Regulations do apply.

RLF Guidelines

• Business start-up or expansion must result in the creation of permanent jobs.
• RLF can finance up to 1/3 of the total project cost.
• Businesses must provide 10%-25% of the project cost in cash equity.
• Below prime fixed interest rates are available.
• Loans available from $10,000 to $125,000.
• Loan terms available up to 20 years for fixed assets and up to 5 years for working capital.
• Principals and business must be credit-worthy and generate sufficient cash flow to repay project debt service requirements.
• Principals of the business must provide personal guarantees.
• Hazard and key man insurance naming SEARP&DC as loss payee required.
• Borrower is responsible for all legal costs associated with the loan.
• Borrower must pay a onetime processing fee of 1.5% of the RLF loan amount at time of loan closing. An annual servicing fee of .5% of the declining loan balance will be charged thereafter.
• Business must be located in Barbour, Coffee, Covington , Dale, Geneva , Henry or Houston County .

The Southeast Alabama Regional Planning and Development Commission (SEARP&DC) and its member counties were designated as an Economic Development District by the U.S. Department of Commerce Economic Development Administration on April 11, 1970 . The agency receives assistance annually for economic development planning and technical assistance.

SEARP&DC
462 N. Oates Street , 4 th Floor
Dothan , AL 36302
(334) 794-4093
www.sanman.net 

Additional Funds Programs

Economic Development Administration - www.doc.gov/eda

The Economic Development Administration provides direct loan guarantees to businesses in areas of high unemployment or low family income. For further information please contact:

Economic Development Administration
401 W. Peachtree Street, N.W., Suite 1820
Atlanta , GA 30308-3510
(404) 730-3002 FAX: (404) 730-3025

There is an individual at that office designated to assist businesses in Alabama .

Alabama Linked Deposit Program

The Alabama Linked Deposit Program is a public/private partnership designed to help stimulate economic growth and development in the state. The State Treasurer will us a small portion of the state investment portfolio to deposit with Alabama banks or savings and loan associations and "link" these deposits to individual loans made to eligible small businesses or farmers. The financial institution will pay up to a 2% lower rate on the state deposits and must charge a corresponding lower rate to the borrower.

To apply for a "Linked Deposit" loan the following process should be followed:

• The borrower should go to bank or savings and loan association and complete an application for a "Linked Deposit" loan.
• The bank of savings and loan association will review the loan application and apply its own criteria for credit worthiness.
• If the program requirements are met, the treasurer's office will notify the bank or savings and loan association.
• The bank or savings and loan association will then make the loan to the borrower.

To qualify for this type of small business loan any person, corporation or partnership engaged in business and that meets the following criteria may be eligible to receive a 'Linked Deposit' loan. The small business must be:

• Headquartered in Alabama
• Creating and sustaining job opportunities
• Having debts equal to or greater than 35% of assets
• Organized for profit
• Having no more than 150 employees
• Maintaining facilities exclusively in Alabama

There is no maximum amount for the loan but one job must be created or sustained for each $15,000 of loan. Loan requests above $250,000 must demonstrate that one job can be created for each $10,000 of loan. The " Linked Deposit " is only available for two years; however, the loan may be made for 5-10 years or longer. The lower rate would apply only to the first two years of the loan. Examples of uses of this type of loan include:

• Wages, Inventory
• Land, Building and Equipment
• Legal, Accounting Fees
• Repairs, Renovations
• Rent, Utilities, Insurance, Taxes

For more information go to: http://www.treasury.state.al.us/website/linked_deposits.html