Failure to do adequate research before committing money to a small business venture is probably the number one reason why small businesses fail. The good news is that the research needed, along with expert advise, is available free from Small Business Development Centers sponsored by the Small Business Administration (SBA) throughout the state.
Bob Lantrip, manager of technical services for the Mississippi Small Business Development Center state office, said that there are 19 centers across the state located at community colleges and universities. Call 1-800-725-7232 for the location closest to you.
When people who are considering starting a small business visit one of the centers, they are assigned a counselor who will help them create a business plan that includes realistic figures such as the amount of traffic on the road where the business is proposed, statistics on similar types of business, and other factors that can determine the feasibility of the proposal.
“The other factor many people don’t understand is how many rules and regulations they have to comply with,” Lantrip said. “For example, both printers and restaurants have a lot of environmental regulations they have to comply with. An inexperienced person also won’t realize they will have expenses like worker’s compensation insurance that need to be taken into consideration.”
Lantrip said the Small Business Development Center also provides inventor assistance for the entire state. The centers also work closely with other business service providers in the state, providing referrals to agencies best suited to provide assistance.
“We work very closely with the other service providers in the state to avoid duplication of effort and to get the best possible help,” Lantrip said. “For instance, we will refer them to the Mississippi Department of Environmental Quality for environmental permits, and to the Mississippi Department of Economic and Community Development for manufacturing. They in return will refer people to us.”
Each year the U.S. Small Business Administration (SBA) provides financial and management assistance to help more than a million small business owners and entrepreneurs start, run, and grow their businesses. The SBA has no funds or grants for direct lending, but provides financing through guaranty loans to small businesses unable to secure financing on reasonable terms through normal lending channels.
Gary Reed, an economic development specialist with the SBA branch office in Gulfport, said the proceeds of SBA loans can be used for most business purposes which include the purchase of real estate to house the business operations; construction, renovation or leasehold improvements; acquisition of furniture, fixtures, machinery, and equipment; purchase of inventory; and working capital. Some of the financial programs available are listed below.
The 7(a) Loan Guaranty Program is one of SBA’s primary lending programs. The program operates through private-sector lenders that provide loans that are, in turn, guaranteed by the SBA. For those applicants that meet the SBA’s credit and eligibility standards, the Agency can guarantee up to 80% of loans of $100,000 and less, and up to 75% of loans above $100,000 up to a maximum guaranty amount of $750,000.
The New SBALowDoc Program is designed to increase the availability of loans under $150,000 to the small business community and expedite the SBA loan review process. It offers a simple, one-page application form and rapid turnaround. Completed applications are processed quickly by the SBA upon receipt from the lender, usually within 36 hours. Consequently, the loan decision process relies heavily upon the strength of the principals’ character and credit history.
Under this program, SBA may guaranty up to 80% of $100,000 or less and 75% of loans exceeding $100,000 to a maximum of $150,000.
The Y2K Action Loan Program can be used only to address the Year 2000 computer problems including the following: the repair and acquisition of information technology systems (computer and other Y2K affected hardware); the purchase and repair of computer software; the purchase of consulting and other third party services and related expenses; and economic injury relief (available after 1/1/2000) incurred as a direct result of the Y2K computer problem or as an indirect result caused by any other entity such as supplier or service provider. Any borrower currently eligible for 7(a) can use this program. For SBA Y2K loans, the maximum SBA guaranty is 90% on loans of $100,000 or less and 85% on loans over $100,000. The maximum SBA guaranty in dollars for a Y2K loan is $750,000. However, if the borrower has an existing SBA loan(s), the maximum SBA exposure is $1,000,000.
The MicroLoan Program was developed to increase the availability of very small loans to prospective small business borrowers. Under this program, the SBA makes funds available to nonprofit intermediaries, who in turn make loans to eligible borrowers in amounts that range from $100 to a maximum of $25,000. The average loan size is $10,000. Completed applications can usually be processed by the intermediary in less than one week. Each non-profit lending organization has its own loan requirements, but must take as collateral any assets bought with the microloan. In most cases, the personal guaranties of the business owners are also required. Depending on the earnings of the business, the loan maturity may be as long as six years. Rates are pegged to no more than 4% over the prime rate. Virtually all types of for-profit businesses that meet SBA eligibility requirements are eligible.
The Women’s Prequalification Loan Program also uses an intermediary to assist prospective women borrowers in developing viable loan application packages and securing loans.
Intermediaries may charge a nominal fee for loan packaging. Once the loan package is assembled, it is submitted to the SBA for expedited consideration; a decision usually is made within three days. If the application is approved, the SBA issues a letter of prequalification stating the SBA’s intent to guarantee the loan. The maximum amount for loans under the women’s program is $250,000. The SBA will guarantee up to 80% for loans up to $100,000, and 75% for loans over $100,000. The intermediary then helps the borrower locate a lender offering the most competitive rates. Eligibility requirements include: businesses at least 51% owned, operated and managed by a woman; average annual sales for the preceding three years can not exceed $5 million; and employs fewer than 100, including affiliates.
The 504 Certified Development Company (CDC) Program provides growing businesses with long-term, fixed-rate financing for major fixed asset projects such as land purchasing and improvements, including construction of new facilities, parking lots and landscaping, or renovating or converting existing facilities, or purchasing long-term machinery and equipment. The program cannot be used for working capital or inventory, consolidating or repaying debt, or refinancing. Generally, the project assets being financed are used as collateral.
A Certified Development Company is a nonprofit corporation set up to contribute to the economic development of its community or region. CDCs work with the SBA and private-sector lenders to provide financing to small businesses. Typically, a 504 project includes a loan secured with a senior lien from a private-sector lender covering up to 50% of the project cost, a loan secured with a junior lien from the CDC (a 100% SBA-guaranteed debenture) covering up to 40% of the cost, and a contribution of at least 10% equity from the small business being helped. The maximum SBA debenture generally is $750,000. The program is designed to enable small businesses to create and retain jobs. The CDC’s portfolio must create or retain one job for every