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Small businesses are the backbone of our economy, creating jobs and adding new and innovative products to the market. The Small Business Administration exists to support both emerging and growing small businesses by offering services, tools, and resources at affordable rates. The SBA also offers several loan programs to help those businesses meet demand, acquire needed assets and personnel, and preserve working capital in an undulating market.  Those programs supplement traditional commercial loans, giving small businesses more options when it comes time to seek outside financial help.

7(a) Loan Program

This program is geared toward businesses that have special requirements either because of where they operate or because of new requirements established by laws such as NAFTA. Businesses that operate in rural and underserved areas, exporters, companies affected by new government regulations, and both active and retired military personnel are all included as “special requirement” businesses under this program. Startups can also seek funding through this program.

Micro Loan Program

Under the micro loan program, the SBA provides small, short-term loans to small businesses and certain nonprofits. The SBA sets very specific guidelines for how the micro loans can be used. Namely, the loans cannot be used for buying real estate or for paying off existing debt. Instead the loans can be used to purchase inventory, furniture, and equipment as well as to use as working capital.  The maximum loan amount allowed under this program is $50,000; however, the average loan amount is typically around the $13,000 range, although the loan amounts can be higher, sometimes as much as $250,000, depending on the micro-loan provider’s parameters.

CDC/504 Loan Program

The 504 program is the vehicle through which the SBA spurs much of its economic development and public policy goals. This program provides long-term, fixed-rate loans for the acquisition of major assets such as commercial real estate, equipment, improvements to real estate, and modernization of facilities for energy efficiency. The maximum loan amount allowed depends on the purpose of the loan and which public policy goal it is satisfying (e.g. rural development, energy efficiency, minorities in business, etc.).

All three programs use third party intermediaries to facilitate funds. Both the 7(a) and 504 programs also require a traditional lender and a consultant to assist with packaging and processing the loan. Check with your local SBA office to learn more and to identify trusted consultants in your area.

On their Small Business page CNN.Money.com has published some interesting stories on small businesses in the U.S. who are feeling the credit crunch and how they are responding.

One page has a series of vignettes of small business efforts to cope. Business owners discuss many problems and solutions from moving their business locations, late accounts receivables, stunted growth, evaporating markets, to loss of lines-of-credit.

A longer article also discusses the problems businesses are facing in the current credit freeze. One family business was forced to close, another small business found local funding when big banks balked, and still another has had to turn away sales because no bank will fund their facilities expansion.

For many years home equity provided start-up and working capital for millions of U.S. businesses. In Hurdle: The Book on Business Planning, President and Founder of Palo Alto Software Tim Berry says:

Why do we say that banks are the most likely source of small-business financing? Because small-business owners borrow from banks. A great deal of small-business financing is accomplished through bank loans based on the business owner’s personal collateral, such as home ownership. Some would say that home equity is the greatest source of small-business financing.

However, this may no longer be the case as another article on CNN Money discusses how home equity as a source of small-business financing has recently changed.

All of this points out how absolutely necessary it is for business owners to focus on their planning processes every single month in managing their companies’ cash flow.

Steve Lange
Senior Editor
Palo Alto Software

Good, solid, well-thought-through cash-flow planning just became all the more important. The New York Times reported in a 28 July 2008 article, Worried Banks Sharply Reduce Business Loans, how banks nationwide have clamped down on loans and lines of credit to businesses.

“Financial industry executives say tighter credit from major banks represents a swing back to a realistic assessment of risk, after years of handing out money with abandon,” says the NYT. This new aversion to lending to businesses is putting a damper on the expansion and growth of business and industry alike.

Here’s where realistic cash-flow planning proves its worth. With it, businesses can moderate their yearly goals, adjust their accounts receivable and payables, keep tighter inventory control (such as just-in-time ordering), and weather the current financial storm without having to borrow money.

With a history of well-documented planning, correct accounting, and plan vs. actual analysis, coupled with well-considered course adjustments, a business which does need to borrow can overcome the reticence of newly risk-averse banks.

Without realistic cash-flow planning, you can be a profitable, successful business and still be bankrupt.

Business Plan Pro, published by Palo Alto Software, is the tool for planning and managing your business’ cash-flow. Use it to sail the stormy waters of this tempestuous economy. And if your planning process shows you will need to borrow money, Business Plan Pro can produce the plan and report documents you need to successfully navigate the reefs and shoals of bank financing. Show them that this is a planned part of the voyage, not just a desperate cash-dash to any port in the storm.

Steve Lange
Senior Editor
Palo Alto Software