A little-known, yet highly advantageous source of financing may be lurking right in your own town! Known as Small Business Investment Companies (SBIC), these unique organizations are expressly designed to help the small business owner secure capital at an exceptionally reasonable cost.
One of the delightful aspects of an SBIC is their link to diverse sources of extremely cheap financing. For instance, a marketer at a recent meeting told of securing sub-prime fixed rate financing by locating his business in a Tax Enterprise Zone identified for him by his SBIC.
A Tax Enterprise Zone is a specific area that has been targeted for commercial growth and development that is typically in a low-income section of town. Anyone wishing to open or expand their business is eligible for very cheap, permanent financing as long as they offer employment growth to the targeted neighborhood. (Anyone wanting details is welcome to contact owner David Silverman of Walt Whitman Truck Stop at 215-336-6200.)
SBICs often have access to temporary government grant money. Another marketer in a rural area of Montana learned of a little-known Dept. of Agriculture loan program through his SBIC. Even though he was in wholesale and retail petroleum, he qualified for the program as a vendor to the agricultural community.
SBIC lending is typically funded through tax-advantaged bond programs. Because of the SBIC’s low cost of capital, loans are typically priced well below market rates.
Most SBICs are affiliated with Small Business Administration (SBA) financing mechanisms. In fact, calling your state SBA office is one way to find SBICs in your area. Another source is your yellow pages under the “Loans” category. In addition, your local banker may be able to provide you with resources, however, remember that SBICs are often in competition with local banks!
Because of government ties on most SBIC programs, expect horrendous, long tedious paperwork. If you have a time-sensitive project with a short string, steer clear of SBIC. Typical time to close an SBIC loan is 6 months.
In addition, expect to go through all the appraisal and site study bells and whistles. If you want the cheap money, you have to play by their rules.
On the positive side, however, once you have your money, living with an SBIC loan is easy. Most times, covenants are less onerous than with traditional or securitized mortgage lenders. Covenants are usually quite reasonable with many requiring only an annual reporting.
Next time you need financing, remember to place a call to your SBIC. You might even get a cheap loan!