News Column

Small Business Lending Strategies Help Get the Loan

February 21, 2011

Ina Paiva Cordle

Jorge Martinez spent eight months jumping from bank to bank, trying to find financing for his Hialeah-based small business, E & M Equipment Corp. The installer of underground utilities kept getting turned down in its quest for funds to cover a payment gap on large county contracts.

Finally, Martinez secured a $250,000 line of credit from Continental National Bank of Miami, through the Community Small Business Enterprise program, guaranteed by Miami-Dade County. That helped the company complete a $1.2 million drainage project on the Marlins Stadium, despite a 45 to 90 day lag in payment on the work.

"With that amount of money, it is very difficult for a small company to front the work for a couple of months without getting money in," said Martinez, vice president of E & M Equipment, which he founded five years ago with business partner and president Edrey Rodriguez. "So that line of credit is really helpful to let us do the job. Otherwise, we would have been very stretched to finish that job."

For Martinez, like scores of other small businesses in South Florida, getting necessary financing has been a difficult challenge, as the economy slumped, banks shied away from lending, and loan demand waned in a sort of recessionary Catch 22.

Now, the door to small business financing is finally opening, at least a crack, as more businesses are getting bank loans that are guaranteed by the U.S. Small Business Administration or through other programs. Some banks are even granting more conventional loans to small businesses.

"I see a little bit of flickering of a light, way out at the end of a very long tunnel," said Marie Gill, president and CEO of M. Gill & Associates, a Miami-based management, public relations and economic development consulting firm. "But I do see a flicker, which is better than total darkness."

Gill's company operates the Minority Business Enterprise Center -- funded by the Minority Business Development Agency of the U.S. Dept. of Commerce -- which helped Martinez get his line of credit. The company provides services to small businesses, such as helping them develop business plans and package loan applications.

TIDE IS TURNING

The U.S. Small Business Administration, which guarantees loans to small businesses, has, in fact, witnessed the tide turning in South Florida.

In fiscal 2010, ending Sept. 30, lenders made 332 SBA-guaranteed loans in Miami-Dade, totaling nearly $112 million, up 23 percent from fiscal 2009, said Althea Harris, a spokeswoman for the SBA in South Florida. In Broward in fiscal 2010, lenders made 238 loans, totaling $79.8 million -- up 40 percent from the previous fiscal year. And in Monroe: 22 loans were made, totaling $7 million last fiscal year, compared to just three loans the year before, totaling $608,000. Figures for the past four months for all three counties are promising, as well.

"It has certainly improved, and the incentives that were included in the Recovery Act and the Small Business Jobs Act have created a flurry of activity in lending," Harris said.

TotalBank, which ranks as one of the top SBA lenders in South Florida, made 51 SBA loans totaling $16.2 million last year, and hopes to double that number this year, said Omar Ojeda, senior vice president and head of the Small Business Department at Miami-based TotalBank, a subsidiary of Grupo Banco Popular in Spain.

"The doors, for us, were open since last year," he said, citing Grupo Banco Popular's financial support as well as new SBA incentives.

TotalBank has committed $500 million to lend to small businesses this year, overall.

"I think lending has started to resume -- not at the levels we saw the last couple of years, but banks are starting to come back, especially with the SBA. It really helps to incentivize banks."

Marjorie Weber, chair of SCORE Miami-Dade, an affiliate of the SBA, which educates and assists small businesses in Miami-Dade and Monroe, is also now seeing changes in the lending market.

"The past few years it's been absolutely devastating for small businesses," she said, citing the dearth of loans. "I started to see changes in December of last year. For the first time in a few years, banks started coming to me seeking good borrowers they could assist in conventional financing."

Banks, including BankUnited, TotalBank and BB&T are working with SCORE, Weber said.

BankUnited , for example, offers "express credit" for small businesses, with a 24-hour turnaround, said Gerard Litrento, the bank's executive vice president of Business Banking.

"We've got liquidity at this point to lend," he said, citing the bank's recent initial public offering that raised nearly $800 million.

MIAMI LOAN PROGRAM

Miami Bayside Foundation is also now seeking borrowers. With a goal of lending $500,000 this year, the foundation -- a partnership between the city of Miami and Bayside Marketplace -- has started a new loan program for existing or start-up Miami-based businesses that meet certain criteria, including minority ownership, said Kathleen Murphy, executive director of Miami Bayside Foundation. Loans will generally range from $10,000 to $25,000.

Joel Pollock and his wife Leticia Ramos Pollock got the foundation's first loan for their start-up, Panther Coffee, a coffee bar opening in Miami's Wynwood neighborhood next month. SCORE helped Pollock apply for the loan.

"It was a big relief," said Pollock, 38, who co-owned a coffee bar in Portland before moving to Miami a year ago. He had already gone to three banks seeking financing, and had even received an approval letter from one bank -- only to see it change its mind after he selected his Wynwood location.

The couple will use 60 percent of the $50,000 loan for remodeling their space, leased from Tony Goldman, plus operational, inventory, payroll and coffee expenditures. The other 40 percent will be used for equipment, such as grinding, refrigeration and water filtration. Pollock said. The business expects to hire four or five employees.

BANKS EXPAND FOCUS

Still other banks say they are ramping up their small-business lending.

SunTrust has expanded its SBA division, and hired an SBA-guaranteed loan specialist for the Broward market, and is in the process of hiring a specialist for Miami-Dade, said Jeff Nager, senior vice president -- SBA division executive for SunTrust.

"This is new for SunTrust, part of the division's expansion , to grow our small business lending platform and expand our SBA options," Nager said.

So what are lenders looking for in borrowers?

For starters, BankUnited and TotalBank say they like to see a business in operation for two years, so that they can review two years of financial data.

A business plan, cash flow projections and a clear sense of what the funds will be used for are also important, said several bankers, as well as Gill and Weber. SCORE puts on workshops for small businesses seeking financing, and provides help putting together financial data that lenders require.

"If they see you are making best efforts to take care of debts out there, they are inclined to look more favorably," Gill said.

For Bank of America, the most important factor is cash flow, said Fabiola Brumley, Southeast Region Business Banking Executive for Bank of America.

"In addition to that primary source of repayment, we consider secondary sources, such as collateral, inventory and accounts receivable," she said.

Ojeda of TotalBank agrees that cash flow is the most important factor.

"We try to understand the business and the trends," he said. "We know that every single business has had drops in sales, so we are trying to be more open minded: What has that business done to survive -- what expenses have you cut, what is your marketing strategy," he said. "You need an ability to demonstrate that the company can repay this transaction.

Personal creditworthiness is also important, Ojeda and others say. Lenders want to see personal financial statements, which Weber said is the biggest challenge for business owners, but SCORE can provide assistance.

"The two main things we look at are character and cash flow," Nager of SunTrust said. "By character we mean have they done a good job on the personal credit side to pay their bills."

What's more, borrowers should be well prepared when they meet with bankers.

"Know what you need, have a package put together," Nager said. "So when you sit down, you have the story to tell and you understand your numbers."

Christina LaBuzetta, president of Miami Beach-based Location Resources, knows first hand how much effort it takes to apply for funding. But for her, it was well worth it.

The result: a $50,000 SBA-guaranteed loan from Borrego Springs Bank of Panama City.

"[SCORE] suggested an SBA loan to expand my business," said LaBuzetta, who has been arranging locations for the upcoming television series Magic City, as well as photo shoots for magazines like Vogue and Marie Claire.

"The process is not easy. It's a project," she said. "But I did get the loan."



Source: Copyright (c) 2011, The Miami Herald


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