Fewer Small Business Administration loans granted locally so far this year

Wednesday, September 14, 2011
Rico Gonzales unloads a package of wood shavings from the RethPACK HC-2020 horizontal compression bagger Tuesday at Flickerwood Farms in Jackson. (Laura Simon)

Fewer local small businesses are receiving startup loans, according to the U.S. Small Business Administration, yet another indicator that the economy is still struggling in the aftermath of recession.

Only one Small Business Administration 7A loan has been granted in Cape Girardeau County this year, compared to seven of these startup loans secured in 2008. The administration's 7A loan program provides funds to help new small businesses get off the ground and existing small businesses to expand. Coinciding with the drop in the number of SBA 7A loans, the dollar amount of these loans has dropped dramatically since the 2008-2009 recession as well.

In 2007, Cape Girardeau County businesses received five SBA 7A loans totaling $1,476,100, compared to just $144,300 in 2011 for the one loan granted to date.

"The largest challenge facing people starting a new business is not their energy, enthusiasm, idea or plan. Their largest challenge is their individual cash or equity investment in the transaction," said John M. Thompson at Bank of Missouri.

Bankers may see new businesses and existing small businesses looking to expand as too risky for conventional commercial loans. The SBA 7A program mitigates that risk by guaranteeing a percentage of loans made by local banks, depending on the loan amount, from 75 to 85 percent.

When Mark Boardman needed money to purchase new equipment for his wood shavings business, Flickerwood Farms, his primary bank -- where he'd done business for years -- denied his loan request.

He went to First Missouri State Bank next, where vice president Geoff Parker helped Boardman secure an SBA 7A loan allowing him to obtain the equipment he needed to update his business.

"They stepped up when other banks wanted to step back," Boardman said.

Since he started Flickerwood Farms in 1983, he'd produced wood shavings from scrap building materials for use as livestock bedding. When housing construction slowed to a crawl in 2008, Boardman could no longer find the materials he needed to keep his business going.

"We have created a big network of dealers in the Midwest who buy our products and sell them in their stores and arenas," Boardman said. "When the housing industry went to nothing, I had to change our business plan."

Boardman had to find a new source of materials, or go out of business all together.

To process raw logs into shavings, required different machinery and a face-lift of the Flickerwood Farms facility.

"As the economic times have changed and the government has come more restrictive on banks, they're not nearly as apt to loan money in the quantities they did in the past. When you have an SBA loan, that takes the heat off the bank," Boardman said.

After securing his SBA 7A loan in 2009, Boardman spent nearly 18 months completing the overhaul of his facilities.

Today, Flickerwood Farms' growth has exceeded Boardman's initial expectations -- producing three times the wood shavings it did in 2007, before the recession.

The decrease in SBA 7A loans has also occurred in Scott County, where four loans totaling $331,300 were granted in 2007 compared to just one loan in 2011 to date totaling $154,000.

In Perry County, the number of loans has stayed steady, at one per year, but the amount of loans has actually increased from $82,500 in 2007 to $148,300.

Across the eastern half of Missouri, both the numbers and amounts of SBA 7A loans granted this year are about one quarter of 2007 totals. A total of 104 loans amounting to $23.6 million have been granted this year, compared to 403 loans totaling 51.3 million in 2007.

The recipients of these loans may not have a proven track record or they may lack collateral required by conventional commercial loans.

"This is where SBA can come in and offer assistance by shoring up that new business. We guarantee businesses that are sound, but just don't fit into the box for lenders," said Bill Vickery, area manager for the Small Business Administration in Cape Girardeau.

The low post-recession loan numbers do not reflect those small businesses that start without bank financing, instead relying on money out of their own pockets or loans from friends and family.

SBA does not track the number of loan applications made, but those are down along with the number of loans granted, said Bob Newman, senior area manager with SBA.

Just because the economy is slow doesn't mean it's a bad time to start a new business, according to Vickery.

Times of recession can provide opportunities for would be entrepreneurs to find underserved markets, he said.

"Some businesses are doing more with less and as a result folks are outsourcing some of their operations, maybe payroll, accounting or marketing functions. For folks that have expertise, this could be an opportunity for them," Vickery said.

He's seen instances where people may have lost their jobs, but take their expertise in the field they were formerly employed in and start their own business.

"Some folks are actually retiring from their current jobs and have always wanted to do something else. They're turning a former hobby into a for-profit business," Vickery said.

The Small Business Administration has development centers at the Southeast Missouri State University Center for Innovation and Entrepreneurship and at the University of Missouri Extension Center in Jackson. Both locations have staff to assist would-be business owners with putting together business plans and completing SBA loan paperwork. Those services are provided at no charge.

mmiller@semissourian.com

388-3646

Pertinent address:

One University Plaza, Cape Girardeau, MO

684 W Jackson Trail, Jackson, MO

Map of pertinent addresses

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