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Small Business Loans Create Big Opportunities with SBA 7(a)

a business man talks on the phone while checking his notes about Academy Bank's treasury management services

Business loans through the Small Business Administration (SBA) can seem daunting to both borrowers and lenders, due both to their level of complexity and strict requirements for government compliance. Based on experience working with SBA lending, Academy Bank’s Commercial Lending team recognized a strong need for helping business owners and fellow lenders to understand the process of procuring an SBA 7(a) loan.

“We found that there was a significant need in Colorado Springs for lenders who understood the process, what it could be used for and what it couldn’t be used for, plus the rules and requirements in order to be compliant with the program,” Steve Ingham, Director of Commercial Banking, said.

“It is a government-backed program, and therefore there are defined eligibility rules, documentation requirements, and procedures that have to be followed,” he continued. “We try to add value by helping clients navigate the process and managing expectations for requirements and processing time. Helping other lenders learn more about the process will help create more full relationships with borrowers and at the same time protect the bank from unnecessary risk.”

The SBA 7(a) Loan Program

A 7(a) loan provides the bank with a 75 percent government guarantee. This incentivizes banks to work with small businesses who may not qualify under conventional lending policies. A major advantage of the 7(a) program is that it allows for longer repayment terms and less money down, which preserves cashflow and working capital upfront so that a business owner can maintain operations and expand more freely.

“The important thing about SBA lending is a structure with extended repayment terms that you can offer someone over what conventional policy requirements allow for,” Ingham explained. “7(a) loans almost always evolve into full relationships with a small business owner who has strong ties to the community, and it allows the bank to expand its Commercial and Industrial (C&I) loan portfolio.”

Steve and his Commercial Lending team have worked with several local small businesses in Denver and Colorado Springs to secure 7(a) loans through the SBA. Of those, they discuss five of their favorite businesses that the bank has worked with over the past two years.

1. Locally-Owned Microbrewery

As a well-known and locally-owned microbrewery in Colorado Springs experienced significant growth, the brewery ran out of space to grow revenue in its singular location. Academy Bank worked with the owners to procure an SBA 7(a) loan to restructure its outstanding debt, make improvements to the current location, and provide funds to build out a new location in a thriving area of downtown Colorado Springs.

The new location is in a perfect spot in downtown Colorado Springs, which is a great area of development both residentially and commercially. They now have tremendous growth opportunity in a very vibrant part of downtown.

Team planning construction

2. Thriving Local Restaurant Concept

Ingham recently had the opportunity to expand outside of Colorado through his work with the Denver-based restaurant owner who has added multiple locations in the past three years. The company currently has four stores in Denver, one in Colorado Springs, and most recently, one in Kansas City.

“The owner’s current bank wouldn’t go out of state, and we had the footprint in Kansas City to accommodate them,” Ingham said. “We were able to offer what they needed under a structure that fit their needs.”

Since spreading the word that Academy Bank is in the SBA lending business, many borrowers have approached Academy Bank when their current banks are unable to provide them with SBA loans, which included this specific instance.

3. Automotive Service Center

A local auto-repair shop in Colorado Springs, was referred to Academy Bank's Commercial Lending team by a local business brokerage firm. The previous owner wanted to sell the business, and through an SBA 7(a) loan, the borrowers were able to buy the existing business. A year later, they purchased the building, further ensuring continuity of operations.

The business now controls its destiny much better if it also owns the real estate, and the owners procure an asset that will appreciate and pay rent to themselves.

Exterior commercial building

4. Retail Liquor Store

The owner of a retail liquor store in Colorado Springs with a 45-year history of operations was ready to transition to another venture. The buyers were a duo with no previous experience as business owners, but with excellent qualifications for this opportunity. One partner had been a sales representative for a wine distributor for the past 20 years, and the other had most recently managed another retail liquor store in town. They worked with Academy Bank on a loan to acquire the business.

In a conventional structure, someone who’s never been a business owner might give a lender cause for caution. The SBA structure helped the bank get comfortable with that challenge.

5. Commercial HVAC Contractor

Academy Bank's Commercial Lending team also detailed a recent business acquisition loan with an established commercial HVAC contractor in Denver. The borrower had worked with one of our lenders two years ago to purchase a residential HVAC company in Colorado Springs and two commercial buildings that housed operations. The borrower sought help again when he was ready to make another acquisition, and the team worked to secure an SBA 7(a) loan to buy the company.

By allowing this contractor to pay the loan off over 10 years, the owner is not overburdened with debt service from the acquisition and has more flexibility to continue to invest in the business, retain quality employees and pursue new opportunities, all while preserving cashflow and working capital.

Expanding opportunity with small business loans

SBA lending in Colorado has not only allowed Academy Bank to provide small business owners with the capital and expansion opportunities they need—it has also helped to further enrich the thriving business communities in Denver and Colorado Springs.

"It’s a very important program to support locally owned small businesses, and to generate new opportunities and relationships for Academy Bank,” Ingham said.