Do your homework before applying for SBA loans


Even though the recession has been officially over for some time, getting a small-business loan hasn’t gotten any easier.

In fact, fewer loans backed by the federal Small Business Administration were made during the first half of this year than during the same period in 2010.

In Southern California, the amount lent in this type of loan declined 7% to $922 million in the period that ended June 30, compared with $988 million a year earlier. That’s more than double the 3% decline nationwide.


The decline was partly because of the end in January of a federal incentive program that had pumped up guarantees for lending institutions.

So, what’s the best way to get a small-business loan in this economic environment?

Business owners who have scored loans said one of the keys was preparation. Expect to explain and justify every aspect of your business. The days of just slapping down a three-year growth projection, real estate appraisal and down payment are long gone.

And don’t be surprised by requests for additional data. Banks and other lenders will often ask for application revisions and additional information.

That was the case with Barbara and Greg Gerovac of Anaheim. Before the couple received a $470,000 SBA loan to open Anaheim Brewery — their wholesale business with a retail tasting room — the couple had to rewrite sections of their business plan.

“They looked at the construction bids and, same thing, came back and said, ‘You know, I think there are some equipment costs you can get some more solid numbers on,’” Barbara Gerovac said.

To figure out the more detailed numbers that the bank required on their income statement, they took advantage of a free consultation offered by the SCORE Assn., a nonprofit that mentors small businesses.


“One thing that helped was we were both in the Army for over 20 years,” Barbara said, “so we have a really high tolerance for paperwork.”

Their start-up, which has seven part-time workers, opened its doors this month in the packing district of the historic part of downtown Anaheim.

At U.S. Bank, which is one of the most active SBA lenders nationwide, loan officials try to spot small businesses that have been aggressive in finding ways to survive or even thrive during lean economic times.

“We recognize that the recession has impacted small business,” said Erik Daniels, the Glendale-based national sales manager for U.S. Bank’s SBA unit. “But what’s interesting to us is what did that small business do to adjust?

“Did they negotiate better terms with their vendors? How specifically did they position themselves to continue to sustain and in some cases grow their business?”

Bankers are also looking more closely at character, the first of the traditional five Cs of creditworthiness. The others are capacity, capital, collateral and conditions, said Bob Coleman, a small-business lending analyst whose latest book is “Money Money Everywhere but Not a Drop for Main Street.”


To a banker, character means a borrower is not only able but also willing to write a check to cover a loan if it goes bad.

Formerly, the overriding emphasis was on collateral.

“Small-business lenders fell in love with collateral, and what we found out during the recession is collateral doesn’t repay loans,” Coleman said.

Loan applicants have to be ready to bare it all, financially speaking, said Elizabeth and Christian Rebufat, co-owners of Babette Bakery in Long Beach. The couple were successful in getting a $195,000 loan to expand their operation into a vacated space next door.

Borrowers, Elizabeth Rebufat said, “need to be open to the idea that their entire life — business and personal — will be an open book to the SBA.”

The Rebufats, who employ 18 people, found a lender willing to make the loan. Even so, the process was not quick, which was frustrating when trying to take advantage of a business opportunity.

“You have on one hand the landlord saying the final document will be ready in a few weeks,” she said, “then have the bank saying, ‘Oh, OK. We will have funding in a month and a half.’”


It was close, but the timing did work out, and the extension of the bakery is now under construction.

Bill Ferrell, who owns a special-effects firm in Sun Valley that has 15 employees, jumped through a lot of hoops to secure a $1.6-million loan. But it was worth it, he said, because it enabled him to take advantage of the current low cost of real estate. With the loan he was able to buy and renovate a larger building for his business.

“Our location is so much better for us,” he said. “I think five years from now we will look back at this as a great opportunity.”