Issue 1, 2003
Federal Reserve Bank of Dallas

The SBA: 50 Years of Small Business Financing

The Small Business Administration has been serving America’s entrepreneurs since its creation in 1953 as an independent federal agency. The SBA supports small businesses in four primary areas: advocacy, management, procurement and financial assistance. The agency is best known for its financial assistance, delivered through business and disaster loan programs, investment programs and bonding for contractors.

The SBA does not make direct loans. Instead, it backs loans with a guarantee that eliminates some of the risk to its lending partners, which include community development organizations and financial and microlending institutions.

Perspectives asked SBA Administrator Hector V. Barreto about the importance of small businesses to the U.S. economy and the SBA’s role in helping them succeed.

Why are small businesses important to the U.S. economy?
Small businesses in America continue to flourish and play a significant role in the overall economy. American small businesses represent more than 99.7 percent of all employers and employ more than half of all private-sector workers. They pay 44.5 percent of the total U.S. payroll and generate 60 to 80 percent of net new jobs annually.

In addition, small businesses:

• Create more than 50 percent of nonfarm private gross domestic product.
• Produce 13 to 14 times more patents per employee than large firms. These patents are twice as likely as large-firm patents to be among the 1 percent most cited.
• Employ 39 percent of high-tech workers, such as scientists, engineers and computer operators.
• Supplied 22.8 percent of the total value of federal prime contracts (about $50 billion) in fiscal year 2001.
• Made up 97 percent of all identified exporters and produced 29 percent of the known export value in fiscal year 2001.

Small businesses also face many of the same obstacles all businesses do: excessive taxes, onerous regulation, rising health care costs and economic uncertainty. But entrepreneurs are resilient and dedicated. That is why America’s entrepreneurial spirit is alive and well.

Describe the relationship between the SBA and financial institutions. How vital is this partnership?
We work closely with our resource partners—the banks and credit unions that make up our nationwide network of SBA lenders—to meet the needs of America’s entrepreneurs. Ours is a mutually beneficial relationship. I often speak at lender conferences, roundtables and other forums, and I am heartened by the dedication of our lenders. In the end, we’re all interested in the same thing: reaching more small business men and women and making their dreams come true.

Since its founding in 1953, the SBA has backed approximately $170 billion in loans. We’ve also provided technical assistance to millions of small businesses. Just last year we assisted over 1.5 million small businesses. We helped launch such companies as America Online, Apple Computer, Callaway Golf Co., Compaq Computer Corp., Federal Express Corp., Intel Corp. and Outback Steakhouse.

One of my proudest accomplishments thus far has been the successful expansion and enhancement of our SBAExpress program. SBAExpress streamlines the approval process to allow us—along with our lending partners—to offer a quicker turnaround on loan applications while reaching more businesses. Without the hard work and commitment of our resource partners, SBAExpress could never have achieved the success we have seen. We are grateful for this success and expect it to continue.

Along with Hewlett-Packard Co. and the U.S. Chamber of Commerce, we have launched a series of Business Matchmaking events throughout the country that pair small businesses with federal, state and local government agencies and private companies that purchase products and services. These events are not simply an opportunity to trade business cards, as with traditional trade shows. Instead, they offer a real chance for small businesses to meet with public and private organizations to identify procurement opportunities.

The federal government alone spends more than $200 billion annually for products and services. Of this amount, 23 percent must go to small businesses. That’s $46 billion up for grabs. Business Matchmaking events make contracting between the federal government, prime contractors and small businesses easier and more efficient.

What other programs does the SBA offer to assist small business creation or growth?
Lending programs may be our most familiar resource for small businesses, but the SBA offers a number of services to assist entrepreneurs looking to start or grow a small business. Through our district offices; our help line, 1-800-U-ASK-SBA; and our web site, www.sba.gov [off-site], we offer a range of technical assistance programs. We provide business counseling, help formulate business plans and identify other opportunities to help businesses succeed.

Our partners in the SCORE Association (Service Corps of Retired Executives) and Small Business Development Centers (SBDCs) provide a valuable source of information and counseling for entrepreneurs. SCORE volunteers provide free counseling and business expertise in support of small businesses. In 2002, SCORE assisted 384,423 entrepreneurs nationwide. Counseling and workshops are offered at 389 chapter offices across the country.

Current and prospective small business owners can also receive assistance through community-based SBDCs. The SBDC program enhances economic development through a collaborative effort of the private sector, government entities, and colleges and universities. There are currently 58 SBDCs operating in all 50 states, the District of Columbia, Puerto Rico, the U.S. Virgin Islands, Guam and Samoa.

Through our Office of the National Ombudsman (ONO), we hold regulatory hearings to identify the challenges some businesses encounter when it comes to government regulations. The ONO’s mission is to foster a business-friendly federal regulatory enforcement environment. The ONO receives complaints from small businesses, investigates those complaints and then helps to achieve equitable settlements.

The SBA also offers assistance for qualifying businesses that are faced with a disaster. From catastrophes such as floods, hurricanes and tornados to the horrific attacks of September 11 or even businesses coping with the temporary loss of an employee due to a military reserve or National Guard activation, the SBA can help. Our disaster loans have attractive provisions, including a 30-year term and a 4 percent interest rate, and are available for up to $1.5 million.

What advice would you give someone who is interested in starting a small business?
First, consider the reasons you are thinking of starting your own business. Evaluate your business idea and examine your personal goals. Take time to determine what business is right for you. Once you have identified your goals, follow these critical steps:

• Develop a comprehensive business plan.
• Secure financing and measure any associated risks.
• Contact your local SBA office, visit our web site or call 1-800-U-ASK-SBA for one-on-one business counseling.

Also, consider some common mistakes and pitfalls to starting a business. For instance, some people don’t realize just how much effort goes into running a business. They may think it would be great to be their own boss, but the commitment is a serious one. It will take a lot of dedication and investment of time, money and sweat to pay off.

But remember, when an entrepreneur succeeds, he or she can realize the American dream.

SBA Serves Up Backing for Restaurant Owner

Cesar Rodriguez opened his first Doneraki restaurant in Houston 30 years ago with $600, a combination of an IRS tax refund and money from his mother and brother. Money was so tight that Rodriguez, who had immigrated from Mexico in 1971, handmade the chairs for the restaurant during breaks from one of his three jobs.

Doneraki has become a Houston institution since that first restaurant opened at 76th Street and Avenue E. But Rodriguez almost closed its doors a few weeks after the opening, when he learned that the city health department required him to have a $2,000 grease trap. Lacking the money for the equipment, he went to the building owner to turn in his keys. She, however, insisted on lending him the money so he could keep his doors open. Rodriguez had faced—and overcome—his first financing obstacle since going into business.

Research shows that like Rodriguez, many small business owners start their enterprises with personal savings, credit cards, and loans from family and friends. Entrepreneurs often can’t obtain financing from traditional commercial lenders for many reasons, including poor or insufficient credit.

This is where the Small Business Administration comes in. Among its programs is the Certified Development Company (CDC) Program—commonly called the 504 loan program—which enables growing businesses to secure long-term, fixed-rate financing for major assets such as land and buildings. Down payments are low, and interest rates are below market. One job must be created or retained for every $35,000 of 504 funding or the business must meet at least one of seven public policy goals, which include rural development, export expansion, minority development and business-district revitalization.

Rodriguez recently opened his fourth Doneraki restaurant with the help of a 504 loan for $546,000 from Capital Certified Development Corp., a statewide nonprofit organization licensed by the SBA to make 504 loans. Capital CDC is headquartered in Austin and has representatives in El Paso and Houston.

The 10,500-square-foot restaurant fulfills the job-creation goal of the 504 program, creating 60 full-time and 12 part-time positions. And it’s a colorful addition to the recently renovated Gulfgate Center in Houston’s East End. The restaurant is done hacienda style, with a bright red tile roof and wrought iron accents. Inside are a fountain that replicates one in Tlaquepaque, near Guadalajara, and a colorful rendering of a Diego Rivera mural.

Financing for the $2.1 million project came from several sources in addition to Capital CDC, including loans from Banco Popular and Houston Small Business Development Corp., a tenant improvement allowance from landlord Houston Gulfgate Partners LP and owner equity. Rodriguez established a relationship with Banco Popular, a subsidiary of Puerto Rico-based Popular Inc., several years ago when he took out his first bank loan after 20 years in business. The bank has the first lien on the restaurant and the CDC has the second.

“It is not easy to find credit for Hispanics, and Banco Popular has been looking for this market’s business,” Rodriguez says.

Banco Popular Senior Vice President Mike Carr says that while helping a customer was the main reason for making the loan, the bank also wanted a role in revitalizing Houston’s East End. Capital CDC’s participation was key since the SBA partner provided a loan to cover a significant part of the total project cost. The CDC’s involvement also enabled the bank to extend the loan term to 25 years, rather than 10 to 15. And although restaurant failure rates are high, Banco Popular looked at the deal as an expansion of an existing business, not financing a new business.

Rodriguez represents the face of small business entrepreneurs. Through creativity and hard work, he has turned his dreams into a thriving restaurant business. The SBA has helped many businesses and business owners like Rodriguez for half a century. And as Doneraki restaurant and the SBA celebrate milestone anniversaries, both are proof of how dedication and determination can equal success.

—Jackie Hoyer

Fast Facts Cesar Rodriguez has operated Doneraki in Houston for 30 years. He recently opened his fourth location in Gulfgate Center in Houston’s East End. The 10,500-square-foot stand-alone building is the first of his restaurants to be built from the ground up. It took two years and $2.1 million to complete the project. Financing Details Banco Popular $644,778   Capital CDC–SBA 504 546,000   Houston Small Business Development Corp. 250,000   Houston Gulfgate Partners LP 360,000   Doneraki Restaurants Inc. 330,000        Total $2,130,778         Building, improvements $1,788,037   Fixtures, furniture, equipment 250,000   Soft costs 25,000   Professional fees 17,741   Interest on interim loan 50,000        Total $2,130,778

Eleventh District Small Business Financing Guide

Commercial banks and the SBA are the most well-known resources for small businesses seeking financing. This guide, which is not all-inclusive, offers additional resources for qualifying entrepreneurs.

Texas

ACCION Texas
www.acciontexas.org
Provides group and individual loans to microentrepreneurs who lack access to capital from commercial sources. Loans of $500–$25,000; collateral required. Serves Texas.
Contact: Mario Riojas, 888-215-2373, ext. 1130

Austin Community Development Corp.
www.austincdc.org [off-site]
Offers financing and technical assistance to small businesses. Basic growth loans of $20,000–$200,000; TMF loans of $50,000–$300,000. Terms up to 15 years. Serves Greater Austin.
Contact: Pamela Cunningham, 512-472-8087
auscdc@austincdc.org

BiGAUSTIN
www.bigaustin.org [off-site]
Lends to start-ups and existing businesses. Up to $35,000 for existing businesses and up to $15,000 for start-ups. Loan terms up to five years. Interest rates 11%–13%. Serves Bastrop, Bell, Blanco, Burnet, Gillespie, Hays, Lampasas, Lee, Llano, Mason, McCullough, San Saba, Travis, Williamson counties.
Contact: Ligia Tervino, 512-928-8010
infor@bigaustin.org

Capital Certified Development Corp.
www.capitalcdc.com [off-site]
Provides SBA 504 loans. Maximum loan of $1 million; terms and interest rates vary. Serves Texas.
Contact: Austin, 512-327-9229
Admin@capitalcdc.com
El Paso, 915-857-3139
cruzmontoya@capitalcdc.com
Houston, 936-931-2022
harryleach@capitalcdc.com

CEN-TEX Certified Development Corp.
www.grandcentraltx.org [off-site]
Provides loans for business and industrial acquisition, construction, conversion, expansion, repair, modernization, land, machinery, equipment and furniture. Loans of $750,000–$20 million. Terms up to 30 years on land, building and permanent fixtures; up to 15 years on machinery and equipment. Serves Central Texas.
Contact: 888-718-0180
junegriffy@austintx.net

Community Development Loan Fund
www.cdlf.net [off-site]
Provides tandem loans to assist the development of small, minority- and women-owned businesses. Loans may be used for working capital, inventory, equipment and owner-occupied commercial real estate. Loans of $25,000– $200,000. Terms of six months to five years. Rates are Wall Street Journal prime plus 4%–6%. Serves Bexar, Bandera, Kendall, Comal, Guadalupe, Wilson, Atascosa, Medina counties.
Contact: Sue Schaefer, 210-738-0312

Corporation for Economic Development of Harris County, Inc.
www.cedhc.com [off-site]
Offers the Small Business Development Loan Fund, microloans and the SBA 504 loan program. Rates, terms and loan amounts vary. Serves Brazoria, Fort Bend, Galveston, Harris, Liberty, Montgomery, Waller counties.
Contact: 713-840-8804 or 281-590-5600
info@cedhc.com

ETCOG Chapman Revolving Loan Fund
www.etcog.org [off-site]
Lends to corporations, partnerships, sole proprietorships and nonprofits. Loans of $35,000–$250,000. Serves Camp, Gregg, Harrison, Marion, Panola, Rusk, Upshur, Wood counties.
Contact: 903-984-8641
luke.kimbrough@etcog.org

Houston Small Business Development Corp.
www.hsbdc.org [off-site]
Provides microenterprise loans to businesses in early stages of development and to stabilize and expand existing businesses. Microenterprise loans of $5,000–$45,000; terms up to five years; fixed interest of 10%–14%. Small business loans for $45,000–$2 million; terms of five to 15 years; below-market interest rates on a case-by-case basis. Serves Houston.
Contact: 713-845-2400

Permian Basin Business Development Center
www.communitycapital.org [off-site]
Provides loans to start-up and existing small businesses through the Mexican American Network of Odessa Small Business Loan Program. Loans up to $25,000. Serves Odessa and Permian Basin area.
Contact: Iris Correa, 915-335-0250

Rural Development and Finance Corp.
www.rdfc.org [off-site]
Provides business and industry loans, intermediary relending loans and microloans. Loans can be used for working capital, inventory, supplies and equipment. Microloans up to $35,000. Terms up to six years for loans over $7,500; up to three years for loans under $7,500. Business and industry loan amounts, rates and terms negotiable. Intermediary relending loans of $10,000–$250,000. Serves Cameron, Starr, Hidalgo, Willacy, Maverick, Dimmit, Webb, Zapata, Zavala counties.
Contact: Sylvia Santos, 210-212-4552

San Antonio Local Development Co.
www.saldc.com [off-site]
Offers SBA 504 loans, SBA microloans, EDA Revolving Loan Fund and HUD Enterprise Community Loan Programs. Rates, terms and loan amounts vary, based on type and program. Serves Atascosa, Bandera, Bexar, Comal, Frio, Gillespie, Guadalupe, Karnes, Kendall, Kerr, Medina, Wilson counties.
Contact: Ed Sommers, 210-206-5626

Southeast Texas Economic Development Foundation Inc.
www.setedf.org [off-site]
Markets, services, processes and closes SBA 504 loans. Fixed rates; 10-year term for equipment and 20-year term for land and buildings. Serves Jefferson and Orange counties.
Contact: Mary Jean Johnston, 409-838-6581

Southern Dallas Development Corp.
www.sddc.org [off-site]
Provides five financial assistance programs for new and expanding businesses, including the Texas Mezzanine Fund. Rates, terms and loan amounts vary. Serves parts of Dallas.
Contact: Theresa Lee, 214-948-7800

Texas Certified Development Company Inc.
www.txcdc.com [off-site]
Specializes in fixed-rate commercial real estate and equipment loans. Also originates, closes and services SBA 504 loans. Loans of $250,000–$5 million. Serves Austin, Corpus Christi, Dallas, Houston, Laredo, San Antonio.
Contact: Ernest Perales, 512-433-1175
loans@txcdc.com

Texas Mezzanine Fund
www.tmfund.com [off-site]
Provides loans to small minority- and women-owned businesses in tandem with traditional lenders, community development corporations and certified development financial institutions. Loans of $50,000–$500,000; terms vary based on loan use; fixed interest rates of 8%–13%. Serves Texas.
Contact: 214-943-5900
kcross@tmfund.com

Tyler Economic Development Council
www.tedc.org [off-site]
Provides working capital and loans for equipment and machinery and purchase and development of land and buildings. Loans of $50,000–$200,000 for up to 25 years. Serves Smith County.
Contact: Phyllis Schneider, 903-593-2004

William Mann, Jr. Community Development Corp.
Provides loans for working capital, equity, real estate and business acquisition. Loans up to $100,000. Serves Tarrant County.
Contact: Alicia Fannon, 817-871-6267

Louisiana

BizCapital
www.biz-capital.com [off-site]
Lends capital to small to medium-sized companies. Specializes in asset acquisitions, start-ups, working capital and business expansion. Also makes SBA and USDA (business and industrial) loans. SBA loans, $100,000–$1.3 million; USDA (B&I) loans, $1 million–$6 million; well-secured real estate loans, $500,000–$3.5 million; mezzanine loans, $100,000–$1 million. Rates are Wall Street Journal prime plus 1%–2.75%; mezzanine loans may be higher. Serves Louisiana.
Contact: John Brocato, 504-832-1993
brocato@biz-capital.com

Gulf Coast Business and Industrial Development Corp.
www.louisianapartnership.com [off-site]
Provides mezzanine or growth capital to existing small businesses. Minimum investment of $50,000–$250,000. Serves Louisiana.
Contact: Cornelius Lewis, 225-922-7717

Louisiana Community Development Capital Fund BIDCO Inc.
www.communitycapital.org [off-site]
Provides start-up capital, working capital and gap financing for contracts or other short-term receivables, capital for asset acquisition, and loans or guarantees to obtain bank financing. Loans of $5,000–$150,000 for up to 15 years. Serves Louisiana.
Contact: Gloria London, 225-924-4116
glo3783601@aol.com

Red River Valley BIDCO Inc.
www.cdconline.org [off-site]
Provides loan funds for business, industry and job creation. Maximum loans of $1 million. Serves northern Louisiana.
Contact: M. D. LeComte, 318-632-2022

New Mexico

ACCION New Mexico
www.accionnewmexico.org [off-site]
Offers loans to self-employed individuals with limited or no access to traditional business credit. Loans of $200–$50,000. Serves New Mexico.
Contact: Marisa Barrera, 505-243-8844, 800-508-7624

Women’s Economic Self-Sufficiency Team (WESST Corp.)
www.wesst.org [off-site]
Operates a revolving loan fund that provides small business loans up to $5,000. Serves New Mexico.
Contact: 505-241-4759

New Mexico Community Development Loan Fund
www.nmcdlf.org [off-site]
Provides loans for new and existing small businesses. Proceeds can be used for equipment, inventory, building renovations and operating capital. Amounts vary; terms up to seven years. Interest rates generally 8%–10%. Serves New Mexico.
Contact: 505-243-3196
nmcdlfgen@aol.com

SBA Offices Serving the Eleventh Federal Reserve District

About Banking and Community Perspectives Perspectives Federal Reserve Bank of Dallas Community Affairs Office P.O. Box 655906 Dallas, Texas 75265-5906 Gloria Vasquez Brown Vice President Diana Mendoza Community Affairs Specialist Jackie Hoyer Houston Branch Community Affairs Advisor Karen Riley Community Affairs Specialist   Jason Sweat Community Affairs Specialist The views expressed are those of the authors and should not be attributed to the Federal Reserve Bank of Dallas or the Federal Reserve System. Articles may be reprinted on the condition that the source is credited and a copy is provided to the Community Affairs Office.