The following article on small business lending appeared in the March 20 issue of the Columbia, MO Daily Tribune:
Mid-Missouri lenders have continued financing small business during the recession thanks to U.S. Small Business Administration programs, and the effort is paying off in new and retained jobs.
By Justin Willett
Saturday, March 20, 2010
The mission of the U.S. Small Business Administration is to help small businesses start, grow and succeed. Last year, the emphasis was mostly on survival for small firms hit by the recession, and as a result the number and amount of loans backed by the SBA were down sharply.
In 2007, there were 78 SBA-backed loans made for a total of $11.8 million. Those numbers dipped to 55 loans and $10 million in 2008. Last year, the SBA guaranteed $5,849,400 worth of business loans for Boone County-based companies. Last year’s loans created 93 jobs and helped employers retain 134 jobs, said Bob Newman, senior area manager for the SBA.
For some companies, the loans provided a lifeline to deal with sinking sales, and for others the money was used to save or create jobs.
David Keller, president of The Bank of Missouri, said arguably the biggest success story — out of the nearly 40 businesses that received loans last year — was that of Alliance Foam Technologies of Centralia.
When Nixa-based Diversified Plastics announced in February 2009 that it was going to close its plant near Centralia, three employees put together a plan to buy the operation. With a $288,600 SBA-backed loan — along with a loan from the state Department of Economic Development — Barry Stevens, Matthew Old and Lance McCann purchased the equipment, inventory and furnishings of Diversified Plastics and formed Alliance Foam Technologies.
The business now employs 28 people, and McCann said they’re adding a second shift beginning Monday.
McCann said a lot of people had a hand in helping launch Alliance Foam, but without the SBA loan, which the trio secured through The Bank of
Missouri, there would have been no company.
Speaking for himself and his partners, McCann said, “We only hope that our story might give someone else the drive and desire to follow through with their dreams.”
Newman said the vast majority of small business lending is done by regional and community banks, and that holds true in Boone County.
Yesterday, nine local lenders hosted an event at Peachtree Banquet Center to highlight their support of small business. The lenders included The Bank of Missouri, Boone County National Bank, The Callaway Bank, Commerce Bank, Hawthorn Bank, Landmark Bank, Merchants & Farmers Bank, US Bank and Enterprise Development Corp., the not-for-profit group that manages the SBA’s 504 loan program.
Dennis Melton, director of the SBA’s St. Louis District and the event’s featured speaker, said it was special to be invited to such an upbeat event considering the past couple of years have been trying times.
“Times are tough, there’s no doubt about it,” he said, “but it’s the resiliency of small business that will pull us through.”
Melton said regional and community banks “never abandoned relationship banking” and thus continued throughout the recession to support their small-business customers.
Chris Rosskopf is assistant vice president of commercial banking at Boone County National Bank and handles most of the bank’s SBA loans.
He said this week that loan demand was down last year; the bank did about five SBA-backed loans. “There were a lot of people who were kind of wary and anxious and content to put off” upgrades or new ventures “for six months to a year. We did see a few applications here and there.
We’re happy to use the program when it is available,” he said. Rosskopf said the increased publicity surrounding SBA loans during the recession has helped boost awareness among small-business owners.
Last year, the federal stimulus package created America’s Recovery Capital, or ARC, loans to provide cash for small businesses suffering because of the recession. The deferred-payment loans offer as much as $35,000 to companies that have seen their revenues drop or have had their credit lines frozen since the economic downtown.
Amy Modrell-Miller, owner of Children’s Orchard at 3906 Peachtree Drive, got a $29,000 ARC loan to pay off debt. She has owned the local franchise of the new and used children’s clothing store for 14 years.
“Basically we got the loan just to pay off debt that we already had and to give us a fresh start,” she said. “When we first opened, our original loan was an SBA loan. We went through some rough years in the middle there, and lately things have really picked up.”
Modrell-Miller said with the money that was freed up she has boosted inventory and hired another employee.
The ARC loan program is scheduled to run through September. Businesses are eligible if they’ve been open for at least two years and have turned a profit in 2007 or 2008; the loans are specifically designed to service a debt, as was the case with Modrell-Miller.
Newman said the SBA has guaranteed five ARC loans in Boone County.
Newman estimates that small businesses make up some 99 percent of all business operations in the nation and that up to 80 percent of new jobs are tied to small businesses.
What qualifies as a small business under SBA guidelines depends on revenues and number of employees. For example, a manufacturer with 500 or fewer employers or a service company with less than $7 million in annual revenue would be classified as a small business.
In addition to providing loan guarantees, the SBA also helps with management, technical assistance and business development counseling through a network of Small Business Development Centers, such as the one on the University of Missouri campus.
Virginia Wilson, director of small business development for the Missouri Small Business and Technology Development Centers, said she and her staff help entrepreneurs develop business plans and connect with lenders and SBA loan programs.
“We are counselors and educators and take business owners through the process,” she said. “With some businesses, it’s holding their hand and walking them through the entire process, whether it’s looking for space to lease to negotiating the lease terms.”
Newman said the SBA is a cash-flow lender, meaning the most important thing is not collateral but enough cash flow to support repayment. He said Small Business Development Centers help business owners calculate profit and cash flow and determine which programs they can use.
Typical SBA loans range from $150,000 to $350,000, Newman said. The most common loan for general business needs is the 7(a) Loan Program. It is delivered through commercial lending institutions.
The SBA’s 504 Program is for equipment and real estate loans and is managed by Enterprise Development Corp., a local not-for-profit organization that “markets, screens and approves long-term fixed-rate loans,” Executive Director Mike Crist said.
Since its founding in 1983, the corporation has helped close more than $400 million in loans. Crist said the corporation’s activity has created about 4,000 new jobs in Central Missouri.
Enterprise also administers the SBA’s Microloan Program for Boone, Callaway and Cooper counties. The program provides short-term, fixed-rate financing as much as $25,000 for small businesses.
Scott Schultz used two SBA loan programs to start Providence Urgent Care last year. He got a loan to purchase and renovate the building at 202 E. Nifong Blvd. and a loan to start up the business.
The urgent-care clinic has eight full-time employees. Schultz worked with Boone County National Bank and The Bank of Missouri on the loans.
Schultz said it would have been more difficult to start the business without the SBA loans, especially during a recession.
Newman said that’s where community and regional banks come in. He said national banks made far fewer loans during the recession but community banks have maintained their lending.
“Columbia banks are clearly still lending, especially the community and regional lenders who didn’t miss a beat throughout the recession,” Newman said.
Newman said the real growth in lending appears to be coming from Enterprise Development Corp. During the first 75 days of this year the corporation made six loans totaling $4.5 million. That’s twice as many loans as all of last year.
“Since some of those deals take many months to put together, I believe they forecast good things for Mid-Missouri in 2010 and 2011,” Newman said.
Mid-Missouri has a track record of success, Melton said in his presentation yesterday. He singled out two people for recognition: Keith McLaughlin, who manages The Bank of Missouri’s SBA lending and was awarded the SBA’s 2008 National Small Business Financial Services Champion award, and Nikki Reynolds, who is the owner of End of the Rainbow Child Development Center and was selected as Young Entrepreneur of the Year for the regional level.
Reynolds and her husband, Jared, purchased End of the Rainbow in 2005 and have expanded it several times. Now they serve 99 children and have a staff of more than 30. The couple secured another SBA-backed loan this year that will allow them to expand to serve more than 150 children and hire an additional five to eight employees.
“We wouldn’t have been able to do it without them,” Nikki Reynolds said of The Bank of Missouri and the SBA.
Reach Justin Willett at 573-815-1715 or e-mail jwillett@columbiatribune.com.