(This post originally appeared on Philly.com)
For five weeks, thousands of small-business owners were forced to wait on much needed financing because the process for approving their Small Business Administration-backed loan applications was interrupted during the federal government’s partial shutdown.
Now that the government has reopened for business, many are expecting to see a quick resumption in loan processing. If that’s you, don’t get your hopes up.
Unfortunately, many experts estimate that the SBA will need weeks, if not months, to clear the backlog from the shutdown. Then there’s the looming threat of another shutdown if there’s no spending deal by Feb. 15, less than three weeks away. All of this means that the small-business owners, especially those needing working capital or equipment financing, need to have a backup plan.
The good news? There are options.
Some banks in the area that are considered by the SBA to be “preferred lenders” have pre-certification programs that can significantly speed up the process for certain loans. The program “means that the SBA signs off on the loan and the lender is authorized to go [more quickly] through its closing and funding process,” said Jay DesMarteau, head of Commercial Specialty Segments at TD Bank. The benefits of getting this done early and working with a preferred lender mean that loans can be processed faster and without as much government involvement.
DesMarteau says that TD Bank was able to get pre-certifications for more than 140 loans before the shutdown and that gave it a “head start” on getting the money into customers’ hands. Business owners who don’t get pre-certified by the SBA through their financial institution or at https://certify.sba.gov will certainly face more hurdles getting their hands on funds if another shutdown occurs.
Another option is to apply for a loan from a community development financial institution. This type of financing, which has a quicker turnaround than other traditional loans, is offered by designated banks through an arm of the U.S. Treasury Department and is designed to meet the urgent needs of local qualified businesses. “These loans are often overlooked,” said Connie E.W. Smith, the Diverse Community Capital Program manager at Wells Fargo. Wells Fargo has a multi-year commitment to deliver $175 million in capital to “help diverse small business grow, including veteran, women and minority-owned companies.”
Smith says that the loans, which can be used for equipment, expansion or working capital purposes, are particularly helpful for early stage or small businesses having a hard time accessing traditional financing. More information can be found at www.cdfifund.gov.
Credit card advances can also provide short-term financing while the SBA catches up. With interest rates ranging between 15 percent and 18 percent, this type of financing is obviously more expensive than traditional bank loans. But if the credit line is available, much-needed funds can be accessed quickly and the additional cost may be worth it. “If the financing need is something day-to-day and short term, like inventory or even covering a gap in wages, it may make sense to consider using a business credit card,” TD Bank’s DesMarteau said.
There are also alternative lenders, such as OnDeck, Fundbox and CAN Capital, but their loans can be even more expensive than credit cards, with interest rates approaching a whopping 80 percent annually. Not only that, but they often come with more onerous requirements, such as heavy pre-payment penalties and more frequent payment schedules. However, the companies offering these loans are positioned to grant quick approvals and often don’t require personal guarantees.
Finally, it doesn’t hurt to ask your suppliers or partners for more time. Most of the businesses I work with are well-aware of the challenges created by the federal shutdown and know that a potential resumption in mid-February could create even more cash-flow problems. However, I’ve found that none of my clients expects the situation to last for the long term, and most are willing to defer transactions or accept different terms temporarily in order to get a deal done that will pay off in the future.
Banks are also playing ball. Wells Fargo’s Smith told me that any customer affected by the shutdown can request a payment deferment and waiving of late fees for up to 30 days on many of the bank’s loan and line-of-credit products.
The lesson for business owners from the past few weeks is clear: Be prepared. Most experienced business people have weathered government shutdowns before. But the smartest ones I know are ready for the next one, whether it’s three weeks or three years away. Knowing all of these financing alternatives isn’t just good to protect yourself in the case of a shutdown, it’s also a good strategy for ensuring your company’s future growth.