The poor everywhere are struggling to survive. Some of them mark doorways for a sleep at night. They could use a magic carpet but reality says they can’t steal one to escape their plight. Many small business hopefuls need money. — it is the Lilliputian’s beanstalk. So what do they do?

First, they try to borrow from a bank.

There, today’s Lilliputians discover an impenetrable wall of loan regulations. Maybe they never tried before and there’s no track record of paying off a loan. A tent or trailer and a nonproductive hound may not be enough collateral to offer. On top of that, they may never have been in business at all, which could bump them right out the door.

Second, they try their relatives. It’s funny how everybody in a family can suddenly be hard pressed with obligations. This is a bumpier route than the beanstalk.

Lilliputians may be students or recent graduates, who already owe their souls to the company store for college loans. Some are middle-aged layoffs from corporate restructuring. Some are young, who are the military. Some work as waiters, lawn service people, in car repair shops and other small businesses where meager job earnings wreck the look of any application, even for a credit card. Some are old, which is bad enough, going broke if not already there. Retirement funds may have vanished with healthcare for a family member, or lost with a divorce, or never planned for at all.

Third, they try for an SBA (Small Business Administration) guaranty at a community bank or local credit union.

The SBA guarantees up to one million of each loan made by its participant lenders, banks or mortgage companies, etc. These loans range from $50,000 to $2 million and down to $10,000, to be repaid in monthly installments. There is no minimum. If accepted, the Lilliputian walks off with working capital for equipment, real estate and a future.

Types of loans offered include a LowDoc. Low documentation loans are up to $150,000. A one page application attests to the applicant’s character, credit history, and collateral with a faxed response within two days. Getting one may be a different story.

“Applicants for loans must have a plan — a way of attack and know what they want,” says Lyn Hamilton, Deputy District Director for SBA. Managerial ability is one of the top priorities in judging an applicant. This can be reflected in many ways, from the way he cares for his home and self, his cash reserves, and the goals he sets.”

Hamilton claims that SBA never turns down a loan on the basis of collateral alone. “It is a combination of things that blends for eligibility — lack of collateral is considered, but so is an applicant’s track record of achievement and credit. A person who pays his bills, tries to save, desires improvement and success is more likely to get a loan than the person who wants a longer term to pay it off.”

Lack of experience in the field they want to enter is a negative as well. “Applicants must get their ducks in order,” she said. “Banks are not too fond of our LowDoc. One page applications do not give them enough information to assure these will be paid off. — there is also less yield on loans for lower amounts.”

SBA has 22 preferred lenders in Western Washington with a low failure rate, according to the Deputy District Director. SBA has had an Express Program since the mid-90’s. Borrowers go directly to the center for expedited processing. Information centers are located at the district office, 1200 Sixth Street in Seattle, in Auburn, at Skagit Valley Community Center in Mt. Vernon, at Bates Vocational School in Tacoma and at Green River Community College. These offices and a district office in Spokane offer a wide variety of assistance to the public.

“Most states have only one office for such information,” Hamilton remarked, adding that Seattle’s Business Assistance Center served as the prototype for others in the United States.

Export Working Capital with a 90 percent guaranty are offered up to $1 million. The CapLines Program finances small businesses short term and cyclical working capital needs with credit lines which can run as long as five years, revolving or non-revolving.

Under the 504 Certified Development Company program, loans are made with banks on a first mortgage basis for about 50 percent of the cost with no SBA guaranty. The borrower is expected to pay down at least 10 percent. The MicroLoan Program provides loans from $500 to $35,000 to qualified small businesses in Western Washington with expansion needs.

Criteria for loans rely on repayment ability — the ability to meet the business expenses, owner’s draw, and loan payments from the business earnings.

The borrower must also have at least one dollar in cash or business investments for every three loaned invested. For established businesses, the balance sheet should show no more than four dollars of total debt for each dollar of net worth. All this is factored into results.

SBA sets maximum rates on its guaranty loans — prime plus 2.25 percent interest for loans more than $50,000 with maturities less than 7 years and Prime plus 2.75 percent for the same with maturities exceeding seven years.

SBA fees for the guaranteed portion up to $150,000 are 2 percent, 3 percent of the guaranteed portion of the loan for $150,000 up to $700,000 and 3.5 percent for the same above $700,000. Banks cannot charge fees on SBA loans but pass the fee expense through to the customer.

Lilliputians may be surprised that loan guaranty approval rests on all available company assets offered for collateral. If not enough, liens may be placed on personal belongings, including a home. Anybody know where to find some star dust?
A knock at the door. Who’s there? The Kitsap Community Federal Credit Union (KCFCU).

Founded in the Naval Shipyard in 1934 by eight people with a total deposit of $100, KCFCU now has 63,000 members and is a 425 million dollar not-for-profit financial cooperative. Through its totally owned subsidiary, Kitsap Financial Services, this institution offers all the Gramm banking regulations provide, according to Earlene Fantz, Senior Vice-President for Operations Support.

“Each of our members get one vote on policies here compared to banks, which permit votes according to the amount of money invested,” she explained. “Our earnings go back into services. We feature higher rates on deposits and are not as fee based as other financial firms.

Describing the difference between banks and credit unions, Ron Rogerson, vice-president of marketing for KCFCU says, “Our members have a common bond. We are the only community chartered group in this geographic area, and the membership field is open for residents, workers, schools, churches and anyone eligible. All our accounts are federally insured by the National Credit Union Administration with a 1.25 percent ratio. FDIC ratio is 75 percent.

In addition, Fantz pointed out that passbook savings earn 1 percent more than banks, checking 1/2 percent more. “We are constructed to want to loan out money to members. Ideally, we have a minimum of investments adjusted to market.

With a philosophy of “People Helping People,” credit unions have focused on keeping in balance between people and high-tech. “All our people are different and our strategies vary by age and the needs of each group,” Fantz asserted.

Recently, Fantz with Carolyn Young, support services manager, have developed a service segment, Individual Development Accounts, where KCFCU matches $2 for every one saved by its members. Brokerage services, insurance, including long-term, and finance planning have been in effect for ten years.

“We consider ourselves a big difference in the economic picture for those who need help,” said the group of officials. “Our institution also cooperates with other credit unions.”

For the Lilliputians, a word of encouragement: decide what you want most then work hard, be honest, try to stay healthy, learn more and become friends with the giants.