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NEW MEXICO IS A STATE OF SMALL business, and small business is always looking for the money needed to start up, to grow, to diversify. The U.S. Small Business Administration, or SBA, helps. Its assistance is not minimal. During the last fiscal year (October 1, 2000 through September 30, 2001), the SBA's two major lending programs provided $57.7 million to the state's small businesses. That money paid for equipment and machinery, inventory, working capital, debt financing or purchase of an existing business. It went to manufacturers, wholesalers, restaurants, real estate developers, hair salons, bagel purveyors, hotels, franchise operations, 'mom-and-pop' grocery stores.

The two major SBA lending programs are the 7(a) program, guaranteeing up to 80 percent of loans up to $100,000 and up to 75 percent on loans over $100,000, with a maximum guaranty of $750,000; and the 504 program, providing long-term, fixed-rate subordinate mortgage financing for acquisition and/or renovation of capital assets.

If your business needs a shot in the arm, however, you can't just run down to the SBA office and ask them for a loan. The SBA does not loan money directly, but rather it guarantees a certain percentage of loan monies provided by your bank. Here's what you should know.

Perks on Offer

An SBA lending package consists of a three-way partnership between your money, the bank's money and the SBA's guarantee to the bank. This spreads the risk, and makes loans more possible.

Another perk of SBA lending is that the terms of the loans may be longer: for example, Wells Fargo Bank offers terms of 25 years for real estate loans, 10 years (or the useful life of) equipment and seven years for a loan for working capital. If you were applying for an SBA 504 loan, according to Wells Fargo vice president Sondra Tye, that could make a difference of five years in loan repayment time and lower payments over a conventional loan.

Fees may be lower as well, and it's often possible to structure a loan with no future albatrosses such as balloon payments or variable interest rates. Ed Cadena, deputy district director and chief of finance for SBA District 682, offers a comparison, saying that "the biggest killer of small business is lack of cash flow; if we can give longer terms, the business can reinvest back into itself." An example:

* Conventional non-assumable loan for $750,000: 20-year amortization (term), 11 percent interest, fee of $7,500 = payments of $7,742 a month with a balloon payment of $681,105 after five years.

* SBA assumable loan for $750,000: 25-year amortization, negotiable interest at 10.5 percent for purposes of this example, guarantee fee of $18,671 = payments of $7,488 a month with no balloon payment. 'Guarantee fee' means the fee assessed on that portion of the loan guaranteed by the SBA.

Help Is at Hand

When you shop for a loan, you have many options. But you don't have to figure this all out yourself. There is help everywhere. Prior to a loan application, help is available for constructing a business plan that will include all the relevant information required by the bank. If you do not know how much money you will need (and lenders consistently report that most business people underrate how much they will need), the bank will not be able to determine the best loan package for you.

New Mexico is fortunate to have a strong network of 19 Small Business Development Centers (SBDCs), and most preferred and certified SBA lender banks will request loan applicants to use this resource. "I'm glad that the SBDC's free assistance is available to our customers," says Marjo Pace, vice president, Western Commerce Bank in Carlsbad. "I send almost all my customers there. The SBDC is always working to make their programs more accessible to the customer."

SBA lenders in New Mexico compliment the SBDCs for their assistance. "Financial institutions should be proud to have them," says Fred Brenson, president of Sunrise Bank. Michael Athens, government lending products specialist at Bank of American, concurs. "The customer often won't know what he needs, hasn't quite thought through the process," he says. "We suggest that customers go to the SBDC for assistance. The centers in New Mexico are excellent."

Another valuable source of assistance is the Service Corps of Retired Executives (SCORE), an SBA-sponsored organization that matches volunteer business management experts with clients in need of advice. Other organizations that receive SBA funding to provide technical assistance to small businesses as they prepare for microloan application (up to $35,000) are ACCION New Mexico, the Women's Economic Self-Sufficiency Team (WESST Corp) and the New Mexico Community Development Loan Fund.

Debunking the Myths

SBA lending has long been rife with myths. "It loans only really large amounts so if I don't need half a million dollars then I can't apply" "It's a federal program and therefore far too cumbersome and lengthy a process to undergo." "I can't get a loan for my startup business."

Western Commerce Bank's Pace says that the bank has provided loans in a range from $10,000 to over $1 million. "We're working on a loan now for $19,000 for immigrants from Mexico who are opening a restaurant in Hagerman," she said. At Wells Fargo, Tye says, "We're here to help you grow. A customer might say. 'I know I'm too small,' but there's no 'too small' a request."

As to the application process, Janice Alvidrez, vice president of First State Bank, says, "The SBA has changed a lot, trying to make the process easier. With the LowDoc program, for example, if the customer has good credit scores I can get an affirmative reply within 24 hours." This program requires only a one-page application form for loans up to $150,000 (one additional document is required for loans over $50,000). "Our philosophy," adds Alvidrez, "is to try to make the loan. The process is not an evil thing."

At Citizens Bank of Las Cruces, SBA loan representative Jennifer Gorham has seen the loan process become much faster than it used to be. "SBAExpress loans (allowing lenders to use their own forms and procedures) mean no extra documents, which makes the borrower happy" The SBA guarantees up to 50 percent of an SBAExpress loan of up to $150,000; benefits in addition to speedy processing include no requirement for collateral on amounts under $25,000, and availability of five-year lines of credit.

SBA Preferred Lenders, who have full lending authority, or Certified Lenders with partial lending authority can offer fast turnarounds on applications.

Startups, once the pariahs of the loan business, have become big business for SBA lenders. "The misconception is that the SBA is the lender of last resort," says Tye. "That's no longer true. With today's layoffs, you'll probably see more of a demand for startup businesses due to loss of jobs. The SBA wants to see more dollars put into startups because across the country, some of the biggest failure rates are with acquisitions. We're aggressively seeking the market for new SBA loans."

Alvidrez notes that many would-be entrepreneurs feels that because they have a good idea and a plan, they don't need cash. "But when we see a business go under, we see they didn't have enough capital investment." It is much better, she states, for a startup business to receive its injection of capital through a loan than from a well-meaning but unpredictable family member like 'Aunt Millie.'"

How It Works

The application process is straightforward. Bank of America's Athens outlines a typical process. "When we meet with a customer, we identify the need and determine the appropriate product. We discuss the application requirements and the customer is given the application to complete and return. Most requests then come to me and I put them into a format for credit analysis. My advice: the quicker you can complete the application, the quicker the process. If there are questions, we address them immediately. We look at the customer's timeframe or deadline. Once the process is completed, I can get approval or denial within 10 to 15 working days or sooner, though big real estate deals may take 30 to 90 days."

Some banks specialize in specific types of loans. Sunrise Bank, for example, focuses primarily on real estate lending. "Right now we're seeing a lot of office condominiums being built," says Brenson. "We work with developers, helping them put their packages together. Customers can get loans for real estate for as little as 10 percent down with a 25-year payment term." Sunrise also facilitates SBA lending for the purchase or acquisition of businesses. The majority of the startups they do are franchises. "SBA loans are treated almost exactly like conventional loans," Brenson adds. "There are no fewer credit requirements, but you get longer terms and better payment plans."