By Frederick H. Mills, Vice President, Newburgh, New York, KeyBank, N.A.

Speed and timing are crucial factors in financing the growth of small businesses. Expedited lending practices reflect an ongoing evolution in small business financing, making small loans available more rapidly than ever before.

When the financial needs of small businesses grow faster than their profitability, they must rely on outside financing rather than on their own internal proceeds to fuel continued growth.

Business loans up to $50,000 can now be obtained almost instantly. These loans do not require collateral. Small business borrowers can qualify for them as quickly as if applying for a credit card, and sometimes by actually using a credit card. A small business owner can generally qualify for such a �micro-loan� within an hour through credit-scored underwriting and an expedited application and approval process. Often the application form itself becomes the note. Loans in amounts greater than $50,000 can be obtained within a few days. However, borrowing larger amounts generally requires collateral, often including the business itself, or personal property, such as real estate.

To qualify borrowers and create a unified credit score, lenders review the credit scores of small business owners and certain data points of their companies. These data points include such important indexes as the length of time a company has been in business and its sales, revenues, profits and cash flow. In qualifying borrowers, lenders look for clean credit histories above all. Often, a business owner�s personal finances and the company�s finances are intertwined. Therefore, lenders take both factors into account through global cash flow analysis, a combined assessment of personal and company finances. In general, to qualify a borrower for a loan, lenders require assurance that a borrower can pay back the loan.

As overall benchmarks, lenders want to see companies with cash flow that is 1.2 times their payments on debt. On the personal finance side of the equation, they like to see personal debt that does not exceed 40 percent of income. As small businesses grow, many take on excess debt, and this may cause concern to lenders.

Startups represent a special challenge in small business financing, as every entrepreneur knows. Many startups fail within two or three years, representing substantial risk to both owners and lenders. Those startups that begin as spin offs from larger companies � this is common with engineering companies, for example � often become independent suppliers to their former employers. However, this may represent a heightened risk since these startups often depend upon a single customer for a high percentage of their revenues. When a single customer supplies 20 percent of a startup company�s revenues, lenders may question how that company would replace the business that would be lost if that customer chose another supplier.

Small business owners generally borrow amounts up to $50,000 as term loans or lines of credit, for working capital and inventory. Borrowing larger amounts provides a wider range of options, including real estate transactions, lines of credit for working capital and inventory, and leasing. A highly valuable financing tool, leasing allows borrowers to finance the entire cost of new or improved equipment to upgrade or expand operations. Leasing also offers significant tax and accounting advantages. The application process for equipment leasing, and for larger loans, typically requires a borrower to provide tax returns for two or three years for both the owner and the company.

Borrowers also may have the option of changing the terms of a small business loan. Many small businesses use lines of credit for several years on a revolving basis, paying back then reborrowing against the line. At the end of two years, some lenders will allow borrowers to convert a line of credit to a term loan with regular payments.

This sort of flexibility in expedited financing for small business can be very useful as small businesses grow into larger companies. This factor also argues for establishment of an ongoing relationship with a resourceful bank that has both small business specialists and other business bankers available, experts who have familiarity with businesses of all kinds at all stages of growth.

Expedited micro financing offers unparalleled ease of doing business and access to capital, but there is also more to it than the speed and nimbleness of rapid turnaround, efficiency and confident underwriting. Working with a bank that offers a full suite of financing options and services for businesses ensures the availability of needed resources and expertise to help a company grow.

About the author: Frederick H. Mills is Vice President in KeyBank�s Hudson Valley District, a business banker with 15 years of experience. He can be reached at (845) 563-5306.

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SIDEBAR:
NOT TO BE CONFUSED WITH�.
Expedited financing programs for small businesses are sometimes known informally as express loans, for their speed. However, they are not to be confused with U.S. Small Business Administration (SBA) Express lending programs, which also finance small businesses.

The SBAExpress program combines the financial resources of a powerful federal program with the underwriting expertise and streamlined, businesslike procedures of a bank. The SBA and a bank share the risk on loans up to $350,000 through this program, with the SBA guaranteeing 50 percent of the loan and the bank determining the creditworthiness of borrowers and using its own forms and procedures to implement the loans.

The program also provides revolving loans of up to seven years, with maturity extensions permitted at the outset.
Turnaround time on applications is generally 36 hours or less. While the SBA generally determines eligibility, it sometimes authorizes qualified lenders to make these decisions.

Other SBA programs also function in this same general fashion � as partners with banks for the benefit of small business borrowers that seek financing to grow. For more information, consult a business banker or visit www.sba.gov.