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SALT LAKE CITY — Despite her self-described "passion for orange barrels," AAA Barricade president and CEO Sara Ofahengaue wasn't about to let the typical roadblocks stand in the way of her company's success.
Demand for the Lehi-based company's traffic control services, which include road closures, detouring and equipment rental, has been growing since the business opened three years ago. Last year, employee payrolls during peak season jumped from 70 laborers in 2011 to 140 workers in 2012.
While financing is often a hurdle for small businesses — insufficient or delayed financing is the second most common reason businesses fail, according to the Small Business Administration — Ofahengaue was keen to recognize that her company was ripe for growth and pursued the funding to realize its potential.
Knowing little about Small Business Administration loan programs, she walked into a Zions Bank branch. AAA Barricade Company was able to obtain an SBA 7(a) loan in July, enabling the business to take on additional federal and municipal jobs.
- The business has a net worth less than $15 million or a three-year average net income of $5 million or less.
- It is seeking a loan of less than $5 million.
As a banker, one of the most rewarding aspects of the job is working with small businesses like AAA Barricade and watching their success stories unfold, no two the same. For many of these fledgling businesses, an SBA loan -- either a 7(a), or if the loan is for real estate, a 504 -- provides the financial tailwind necessary to get them off the ground.
While the Small Business Administration does not make direct loans to small businesses, private-sector lenders facilitate loans that are guaranteed and structured by the SBA. Because the loans are backed by the SBA, lenders can often extend financing to small businesses that would not otherwise qualify. These loans usually have more flexible terms than conventional loan options, with lower monthly payments to free up much-needed capital for small businesses.
The most basic and most used type of loan in SBA's business programs, the 7(a) loan provides small businesses with up to 25-year, fully amortized loans of up to $5 million. The funds can be used for most business purposes, including supplying working capital, helping small businesses purchase real estate or upgrading equipment.
For Brent Weight and Darryl Zitting, owners of Southern Utah-based Cannibal Cycle, an SBA 7(a) loan helped jumpstart their inventory purchasing.
The Washington City company, which opened in March, sells used motocross motorcycle parts through an online eBay store. Now with more parts to offer online, thanks to the SBA loan Zitting and Weight received in June, the business has been doubling its sales each month. Cannibal Cycle has quickly expanded to add three full-time and two part-time employees.
"It would've taken us a long time to get our business started without being able to use the SBA loan for our biggest initial cash outlay — purchasing bikes," Weight said.
Another Utah small business, DPS, a Salt Lake City-based manufacturer and international distributor of high performance carbon fiber skis, is poised to expand its workforce after receiving an SBA loan in June.
"We're thrilled to contribute to the Utah economy, having recently added many valuable employees to our team. Our prospects remain strong," DPS founder and president Stephan Drake said.
Roughly 97 percent of companies in Utah qualify as small businesses.
Because they hire workers, small businesses are key drivers of the economy. Roughly 97 percent of companies in Utah qualify as small businesses, and we know they help fuel our economic growth because they are the principal source of new jobs.
At Zions Bank alone, which has ranked as Utah's No.1 SBA lender for the past 19 years, 437 Small Business Administration-backed loans approved during the 2012 fiscal year helped Utah businesses grow so that they could hire 1,212 new employees and retain 2,289 positions, according to SBA data. That represents about 40 percent of the 1,071 SBA loans approved in the state during the latest fiscal year. And the recipients of these loans represent a broad cross-section of commerce: 32 percent went to women and minorities, and 34 percent were made to new businesses.
Nationally, SBA loan volume in fiscal year 2012 posted its second largest total ever, $30.25 billion in loans to small businesses. That is second only to fiscal year 2011, which was lifted by the loan incentives under the Small Business Jobs Act of 2010.
"Reaching such strong numbers is a clear sign that both the business and lending communities are regaining their confidence in the economic climate of the country," SBA Administrator Karen Mills said in an Oct. 9 statement. "It means that the credit markets are increasingly willing to help small businesses establish themselves, grow and create new jobs for Americans."
As small businesses lead the charge to propel the economy into more robust growth, entrepreneurs can better position themselves to qualify for a business loan by preparing in the following ways before speaking with a lender:
- Fine-tune your business plan. Good business plans are comprehensive, well thought-out documents that provide the basis for entrepreneurs to make sound business decisions. A strong business plan will help lenders feel more confident in lending money to your business.
- Ready your documentation. Organize key documents, including tax records and earnings statements, and be prepared to explain them.
Do your homework. Find a bank that specializes in lending to businesses like yours. 2. Articulate why your business has a better "value proposition" than your competitors. 3. Know the risks in your industry and have a plan to mitigate them. 4. Provide at least two ways to pay back the loan.
