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SALT LAKE CITY &mdash: As the U.S. economy starts down the road to recovery, small businesses will ultimately be the key drivers in fueling economic growth. As the lifeblood of our local, state and national economies, America's 23 million small businesses employ more than 50 percent of the private workforce and account for more than half of the nation's private sector output. In Utah, about 97 percent of businesses qualify as small businesses and they are the principal source of new jobs.
With the return of modest economic growth and recovering revenues, many small businesses are ripe for expansion. But with shaken confidence in the economy and in their ability to secure credit, some entrepreneurs are reluctant to take the next step toward growth, whether that means hiring additional employees, ramping up production, investing in capital, or upgrading equipment.
In Utah, about 97 percent of businesses qualify as small businesses and they are the principal source of new jobs.
An August 2011 study by MultiFunding LLC, a firm that helps small businesses obtain loans, reported that 73 percent of small business owners who need a loan don't bother to apply for one. Fear of rejection appears to play a significant role in deterring entrepreneurs from seeking loans, the reason cited by 21 percent of study respondents who chose not to apply.
Along the same lines, a January 2012 small business credit study by the National Federation of Independent Business found an apparent disconnect between lenders and small- business owners. Small business owners believe credit standards have tightened, while lenders say standards have not changed or have eased.
Contrary to lingering perceptions, banks are lending to small businesses, and this much-needed infusion of capital is strengthening companies, which are in turn invigorating the recovering economy. At Zions Bank alone, our Small Business Administration-backed loans during fiscal year 2011 - which represented about 35 percent of SBA loans approved in the state - helped Utah businesses grow so that they could hire 1,218 new employees and retain 4,314 positions, totaling 5,532 jobs, according to SBA data.
One such example is local restaurant start-up Mo' Bettah Steaks. Bountiful entrepreneur Kimo Mack launched the company with his brother in 2008 to fill a unique niche in the fast food market by offering Hawaiian-style fare at affordable prices. After expanding from its flagship Bountiful location to a second in Salt Lake City, the company received an SBA 7(a) loan from Zions in October 2010 to expand its services. It opened a third location in Logan in February, hiring 10 new people to staff the restaurant.
We opened our restaurant right before the economy went downhill, and there were a few months when we wondered if we should pull the plug.
–Kimo Mack, Mo' Bettah Steaks
"We opened our restaurant right before the economy went downhill, and there were a few months when we wondered if we should pull the plug. But by the time we made it a year, we had opened our second location," Mack said.
As with Mo' Bettah Steaks, the best avenue for many growing young businesses is to utilize the SBA loan programs, either a 7(a), or if the loan is for real estate, a 504. SBA 7(a) loans are the most basic and most used type of loan in SBA's business programs. The program offers up to 25-year, fully amortized loans that result in lower monthly payments for the borrower. Proceeds from the 7(a) program may be used for most business purposes, including the purchase of real estate for business operations, acquisition of equipment, and working capital.
Something else to keep in mind when navigating the world of SBA lending is that obtaining a loan may not take as much time as you think. While the application-to-closing process may take longer than a month, working with a financial institution designated as an SBA "preferred lender" can significantly speed up the process. This is because the SBA does not need to do any underwriting and accepts the preferred lender's underwriting instead.
Utah is consistently recognized as a great place to do business, most recently ranked by a Thumbtack.com/Kauffman Foundation poll as one of the five friendliest states for small businesses. So it's not surprising that economic reports over the past six months show that Utahns are about the state's economy, present and future. As small businesses lead the charge to propel the economy into more robust growth, entrepreneurs can better position themselves to qualify for a business loan by preparing in the following ways before speaking with a lender: - Fine-tune your business plan. Good business plans are comprehensive, well thought-out documents that provide the basis for entrepreneurs to make sound business decisions. A strong business plan will help lenders feel more confident in lending money to your business. - Ready your documentation. Organize key documents, including tax records and earnings statements, and be prepared to explain them. - Review your credit. Check up on your business credit file to make sure there is no fraudulent or inaccurate information. - Do your homework. Find a bank that specializes in lending to businesses like yours. - Articulate why your business has a better "value proposition" than your competitors. - Know the risks in your industry and have a plan to mitigate them. - Provide at least two ways to pay back the loan. - Don't ask for a loan that should be funded with equity injections.
