Ken Smith is president and CEO of Wakefield, Mass.-based BDC Capital, the oldest business-development corporation in the country. BDC has invested more than $1 billion in New England companies over 57 years.
Smith was a panelist this morning at a Smaller Business Association of New England forum discussing innovative borrowing techniques for small businesses. He answered five questions about on the topic.
PBN: What tips do you have for business owners searching for financing right now?
SMITH: The best advice that I can give owners searching for financing is to be prepared, be accessible and be flexible. Many times we are approached by businesses looking for capital and they have not done their homework. They don’t know how much financing they need, what structure they are looking for, and they are lacking in specifics as to what exactly the funds will be used for. Companies should be able to present where their business has been, where it is today, where it is headed, and the amount of financing needed to take it there. Be accessible – it can be frustrating for a lender or investor to review a financing request, undertake analysis, structure a financing proposal, and then not be able to reach the business owner after numerous phone calls.
Businesses should understand that lenders are dealing with multiple prospects at the same time, and there are many demands on their time. Give the lender your cell phone number and encourage them to call you anytime including nights and weekends. Be flexible – many times there may be alternative financing structures to the amount and type of financing that you are seeking. Be open and coachable if an alternative structure is suggested.
PBN: I read that the federal Small Business Jobs Act permits existing SBA 504 program borrowers to refinance their first mortgage. What is the upside and downside to doing this?
SMITH: The SBA 504 refinancing provisions are new to the 504 program, and the SBA has placed restrictions on who will qualify for this. Be sure to check the criteria with an experienced 504 lender. The upside for many companies will be a low, fixed rate of interest up to 20 years. SBA 504 lenders are just beginning to implement the refinancing provisions so I think we will know a lot more about the practicality of refinancing within the next few months.
PBN: What part of the Small Business Jobs Act will prove to most helpful to the largest number of businesses?
SMITH: One of the lesser known sections of the Jobs Act has the most potential for job creation. Part of the bill provides funds for states that have small business Capital Access Funds. These funds, which exist in 22 states, have produced incredible job growth over the past 15 years. Capital Access Programs provide a variety of different financings for community-based businesses like the local bakery, or other Main Street businesses. In the neighboring state of Massachusetts, CAP has funded more than 4,000 companies and created more than 30,000 jobs. Many states have realized significant job gains for a relatively small investment in CAP. I believe that the additional funds for CAP contained in the jobs bill will have a large impact.
PBN: What do businesses that are looking for financing want to use it for? Working capital? Improvements? Expansions? Survival?
SMITH: Right now, we see strong demand for two types of financing: working capital and long-term, fixed-rate financing to acquire real estate and machinery and equipment. While there is still a great deal of uncertainty about the strength of an economic recovery, many businesses are experiencing a modest uptick and are positioning themselves for future recovery. Companies are taking advantage of the historically low, fixed rates to lock in real estate mortgages and long-term equipment financing loans. This past year, we processed fixed rate SBA 504 loans for 80 different New England businesses. This was up 40 percent from the prior year.
PBN: What could have the act included, and does not, that would have been even more helpful to businesses?
SMITH: Lines of credit for companies from $500,000 to several million dollars are still among the most difficult to obtain. Because of the revolving nature of these loans, they are a little more complicated to structure than term loans. I did not see much in the jobs bill to help address this need, which is quite pressing for many small business and middle-market companies.
Beyond Cash Donations: How New Forms of Giving Are Transforming Not-for-Profit Accounting
Evolving Funding Landscape for Not-for-Profits Not-for-profit organizations are being asked to do more with less,…
Learn More
