Myth busters SBAUSDA loans

April 9, 2011
| By Pete Daly |
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The Michigan Manufacturers Association will hold a seminar April 26 in Lansing in partnership with banking experts from Lake Michigan Financial Corp. of Holland that will focus on helping Michigan manufacturers understand and apply for USDA and Small Business Administration-backed loans.

Lake Michigan Financial Corp., a bank holding company that operates The Bank of Holland and the Bank of Northern Michigan in Traverse City, has been chosen by the MMA to lead the workshop due to its extensive experience with USDA and SBA loans.

The Bank of Holland received the 2010 USDA award for lending $25 million and is one of the leading SBA lenders in the state, based on its size. Also, Lake Michigan Financial Corp. is ranked 55th nationally in SBA lending.

Chuck Hadden, president and CEO of the Michigan Manufacturers Association based in Lansing, said, “Michigan manufacturers will tell you they face a very tough credit market. It is imperative that we dispel the myths and educate our members surrounding SBA and USDA loans.”

Hadden couldn’t be reached to explain those “myths,” but Al Cook, an SBA loan administrator in Detroit, said one of them is that the SBA makes outright grants, as well as loans.

“We never had any grant programs. That’s the first thing I’d like to dispel,” said Cook.

Another myth is that SBA directly loans money to businesses — “which we do not,” according to Cook. He added that up to the mid-1990s, there had been a direct loan program, but it is long gone.

The SBA program will guarantee repayment of from 75 to 85 percent of a loan taken out by a qualified small business, which encourages banks to make loans that small businesses can afford.

“The business deals 100 percent with the lender,” added Cook. “We seldom, if ever, talk to the people applying for the funds. So it’s important to understand and establish a good relationship with the lender, and know the lender’s lingo.”

Cook said another myth is that SBA-backed loan decisions are based on who owns the business — “especially for minorities or women. And we do not.”

The only exception in that regard is an SBA loan program tailored for military veterans.

Brad Dyksterhouse, senior vice president of Business Resource Lending at Lake Michigan Financial Corp., will be the main presenter at the MMA seminar entitled “Unlocking Capital in a Tight Credit Market.”

Dyksterhouse said a number of other myths have been passed down over the years regarding SBA loans. Those myths include: only certain types of industries qualify; loan sizes are small; paperwork is a nightmare; and approvals take forever.

“We have information we’re hoping to get out at this seminar that will show how those things just aren’t the case anymore if you find the right banking partner,” said Dyksterhouse.

Dyksterhouse said that in the banking industry there had been “additional perceived risk for companies in the automotive industry” because of the troubles car makers experienced during the recession. Even though “a lot of those suppliers continued to do well,” said Dyksterhouse, “other banks” were reluctant to loan to them, “and it gave us a great opportunity to come in and use our SBA and USDA programs to move the relationship over to our banks.”

In 2009 and 2010, SBA was a recipient of federal ARRA (“stimulus”) funding, which temporarily provided a higher percentage of the guaranteed amount of an SBA-backed loan — up to 90 percent. ARRA funds also were used to reduce fees that are normally paid by the borrower.

ARRA “did help greatly increase our loan activity throughout the state,” said Cook, but that ARRA funding ended Dec. 31.

The 2011 federal fiscal year began Oct. 1, and the last three months of the year were “big” in terms of SBA loans, said Cook, including “the biggest December we’ve ever had, maybe because the banks knew the Recovery Act provisions were running out at the end of the month. January slowed down; now we’re back to normal activity, based on my experience.”

ARRA funds increased the number of SBA-backed loans by 50 percent and increased the total dollar volume loaned by 70 percent.

The federal Small Business Jobs Act passed in September also had an impact, raising the cap on SBA-backed loans from $2 million to $5 million.

Loans backed by the U.S. Department of Agriculture Rural Development/Business and Industry program are available for manufacturing operations in “rural” areas, which are deemed to be most of the state of Michigan except for the largest metropolitan areas.

Although offered through the USDA, its Business & Industry loans are not intended for purchase of farms or for direct investment in agricultural production. Terms of the USDA B&I-backed loans are similar to the SBA-backed loan process.

Last fall, the Port City Group in Muskegon, an auto industry supplier with six facilities, was approved for a USDA Business & Industry guaranteed loan of $9.6 million from the Bank of Holland for expansion of its facilities.

Also last year, Skilled Manufacturing Inc. in Traverse City received two USDA-guaranteed loans totaling $7,785,000, which will enable the company to hire another 75 workers. The loan was through The Bank of Northern Michigan.

According to the Lake Michigan Financial Corp., its banks made $70 million worth of approved SBA and USDA loans in 2010.

“They are very active with us, for a bank of their size,” said Cook, noting that the LMFC banks are much smaller than other Michigan banking corporations such as Fifth Third, Huntington and Chase.

Nonetheless, The Bank of Holland is “in our top lenders,” said Cook, and soon will receive an SBA award reflecting its high SBA loan activity of late.

“They’ve really been very active with us — but I don’t make recommendations for banks. But I can tell you, Grand Rapids is blessed with very active SBA lenders,” said Cook.

At the two-hour seminar for MMA members starting at 10 a.m. April 26, Dyksterhouse and other LMFC executives will help the members understand USDA and SBA loans, requirements, processes, qualifications, applications and approval timelines.

Cook noted that there are other resources available to help small businesses figure out financing options — in particular, the Michigan Small Business & Technology Development Centers around the state. The one based in Grand Rapids at the GVSU Seidman College of Business was praised by Cook as the most effective of the dozen or so MI-SBTDCs.

Other advice is available from the SCORE groups that mentor small business in partnership with the SBA. There are SCORE offices in Grand Rapids, Muskegon, Holland, Kalamazoo and Ludington.

For more information about the MMA seminar on SBA and USDA loans, see www.mma-net.org/education/seminars.asp

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