The Small Business Association (SBA) is a U.S. government agency designed to provide support to small businesses and entrepreneurs and identify its activities in a three word summary – capital, contracts and counseling. Yet, those familiar with it mainly associate SBA as a source of financing for entrepreneurs, especially when easier options are limited. Its mission is to “maintain and strengthen the nation’s economy by enabling the establishment of small businesses and by assisting in the economic recovery of communities after disaster.”
Due to its infamously tedious and sometimes downright frustrating system of processing loans, it is most often not the first choice of motivated entrepreneurs with strong credit and other options, especially new franchisees lucky enough to have mentorship in this area. Still, strong-willed small business owners have the use of their resources as a tool to get themselves started and from there have moved on to create their own versions of the classic pursuit of the American Dream.
Financing though SBA can mean extra hoop-jumping to get what you need
Even though the federal government has cut the SBA budget and during the 1990s they even looked into eliminating the agency, it is still around. The guarantee it offers gives a cushion to banks to accommodate those who need longer repayment periods and to approve loans. So, if you are in a position that necessitates obtaining a loan with lower payments and a longer term or if you do not have a substantial operating history nor adequate collateral, Small Business Association loans may be worth your time. But the truth remains that the maze of paperwork and other requirements that qualify as lots of red tape still plague SBA loans to the point where many small business owners credit the agency with the appearance of more than one gray hair on their heads.
You could go through the entire SBA financing jungle gym only to discover that you still have not satisfied their need for proof of required cash flow for one of their more popular options, the 7(a) loan. If you are intent on SBA as a route to business ownership, you want to take a peek at their SBA Express program, asking you to guarantee half the loan’s value and promising a 36 hour turnaround, but the caveat is that the maximum loan amount is only a patch of what the pesky-to-pursue 7(a) provides. You will need to weigh all of your options to decide if this government agency is still the one for which you want to hold your hungry entrepreneurial breath in terms of financing.
The stress-reducing assistance of a franchisor helps ease business owners’ burdens, even with financing
If you happen to be excited about a franchise opportunity, set yourself up with a franchisor who has experience helping its franchisees during the early stages and that includes financing. There are many options that can be favorable to your particular needs and a reputable franchisor will help you find them. For instance, Ron Rubin, Regional Vice President in the New England Region for Minuteman Press International, assists new franchise owners traverse the path to their grand openings on all fronts, including the challenge of financing their franchises.
Ron offers just one of his preferred options that are far-less stress inducing than an SBA route, explaining, “If you have a retirement fund (401K, IRA, etc.), my favorite method of funding is a ERSOP (Entrepreneur Rollover Stock Option Plan). This IRS approved plan allows you to access your retirement funds without paying taxes at that time – and they do not issue any penalties. There is a one-time fee and annual filing fees but both are usually less than the cost of a conventional loan and there are no interest or payback requirements. SD Cooper is one of the companies with an approved plan.” SD Cooper is a company that works with your accountant and attorney and as you receive your information up front and deal directly with tax and pension specialists, the process to actually get the money you need can be relatively smooth.
SBA loans can be a springboard to success when options are slim, but the world of business loans is bigger and expanding options offer smoother rides to the prize of financing – more so than many might realize
As some franchise owners have used the Small Business Association loans as a path to getting their ventures up and running, some have gone on to expand their successes into additional locations, deciding that SBA took too much time and energy. One such story is told by Minuteman Press International Regional Vice President, Jim Galasso (NY/NJ/CT): “When Ron and Sandi Burlakoff bought their Minuteman franchise back in 2003 they decided to go through the SBA. The Small Business Association procedure required them to apply at their local bank first that was an SBA lender before the government would guarantee the loan with the bank.”
Jim continues, “Since the SBA has prequalified all of the Minuteman Press documentation, the Burlakoffs would have to submit all their financials to be approved for this government granted loan. The paperwork was endless but Ron is persistent so he continued to complete all the SBA forms. It was many months later that he finally received the funds to purchase his Minuteman Press. Turns out, as deliberate and persistent as he was in obtaining the SBA loan he was more so in focusing on growing the business that he bought. Today, Ron’s East Haven Connecticut franchise is in the top 10% sales producing stores in all the Minuteman franchise system.”
Jim notes the tremendous growth that Ron and his wife, Sandi, initiated after the eventuality that SBA approved the loan for their first location and how it was tiresome enough that when they became multi-unit franchise owners, they elected to team up with their franchisor for
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