Interest Rate Options Exist for Small Businesses
Ethen Pineda
Ethen Pineda suggests several options for small businesses and entrepreneurs in today’s economic market.

Small business owners and entrepreneurs who assume that higher interest rates mean an end to expansion or growth should consider SBA and other loans available through Midwest Small Business Finance, an EDC affiliate.

Despite some interest rate increases, applications have remained steady at the nationally recognized, certified development corporation. Loan Officer Ethen Pineda noted there are several reasons, including business opportunities that can’t be missed.

“We’ve had businesses that have been leasing a building for years and then get an opportunity to purchase it that can’t wait,” he said. “The environment may not be perfect, but that’s a now-or-never issue.”

SBA loan rates have increased, though not nearly to the extent of some alternatives. Small business owners traditionally rely on personal savings or even credit cards to fund their expenses and by comparison, SBA loan rates are much more attractive.

“The rate increases right now seem outrageous because they have been so low for so long. But if you keep things in perspective, right now rates are at the level they were for most the 2010s. Especially with the type of loans we offer, the rates are still attractive.” And when rates drop, SBA loans can be refinanced.

The popular SBA 504 loans are a good example. The entire “loan” amount is comprised of three parts: 40 percent from the SBA, 50 percent from a bank and 10 percent from the business owner. That and the paperwork can make the process appear complicated, but few loans are simple unless you have well-established credit or a “rich uncle,” the type of things most small businesses don’t have. 

The 504 formula does several important things.  The SBA portion is a fixed-rate, low interest loan for up to 25 years — something basically unheard of in any loan environment. Getting a bank’s 50 percent is often easier because of 504 terms. Under 504 regulations, the bank is positioned as prime lender, placing it in a better position if the loan hits problems – which banks definitely appreciate.

“Many times, someone goes through a bank first, and the bank turns them down,” Pineda said. “The 504 gives them the terms they need, and the bank likes that. What we are to a bank is a bit more of a guarantee and that opens opportunity for borrowers, including in riskier industries.” 

As a result, many banks promote SBA loans for small businesses, viewing organizations like MSBF as a partner, not a competitor. In fact, MSBF receives about 80 percent of its customers through recommendations from banks and maintains a close relationship with the institutions. Many of MSBF’s board members are banking professionals. 

None of this means that the current economy is free of challenges, but several trends offer opportunities, too. Pineda noted one Clay County business recently used a loan to redesign their office into a single, open space so it better fits trends like remote work. Overall, economic trends are remarkably positive, especially considering the negative headlines that seem to predominate.

“Right now, most are pretty happy,” Pineda concluded. “Maybe it’s just that we’ve seen what the lows can be, and now we’re seeing things picking up.”

For more information, call Pineda at (816) 468-4989 or email ethenp@clayedc.com.

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