Published on February 13, 2013 by Susan L. Silk, SCORE
Members of SCORE (Service Corp of Retired Executives), an organization created and supported by the U.S. Small Business Administration, offer in-person and online counseling for both for-profit and nonprofit organizations on Martha’s Vineyard.
In this monthly column, The Times has invited SCORE members to discuss business issues familiar to Vineyard business owners and managers. SCORE members will also answer questions from readers, posted at mvtimes.com.
Recently new SCORE Island clients have come to an initial counseling meeting with lots of enthusiasm, a willingness to invest “sweat equity” and little or no real financial means, wanting to start a business on Martha’s Vineyard. Excitement only goes so far when there is a need for things like a place to work, machinery and/or materials.
The SCORE counselors turned to the South Eastern Economic Development Corporation (SEED), for advice. In 1982, the U.S. Small Business Administration (SBA) created these certified development companies to serve as intermediary lenders to make loans below the market interest rate, and service these loans, to small businesses that are too risky for traditional bank loans.
SEED does not compete with commercial lenders to help make investment capital available to small businesses. As a non-profit, SEED’s mission is to create and maintain jobs in the region it serves — Massachusetts and Rhode Island. With its own guaranteed lending programs including a recently created “community advantage program,” SEED lends directly to small business people who do not qualify for traditional loan programs because they are start-ups, have no collateral, and/or fall below the established credit guidelines.
Tamarah Bacon, SEED business development and assistance manager, told The Times that there are currently nine companies on the Island that are operating with SEED loans and “our overall default rate is less than 2 percent which is fantastic in this economy.”
A SEED loan recipient may receive working capital, refinancing of high interest credit card debt that was accrued in order to run the business, or funds to purchase real estate and/machinery.
On the Island, SEED works closely with Edgartown National Bank and the MV Savings Bank by receiving referrals from these institutions and on occasion may assist banks in completing a loan application package by doing the paperwork required, according to Ms. Bacon.
To qualify for a SEED loan, a pure start-up “must have a secondary source of income,” Ms. Bacon said. This may include a working spouse or other source of income. “It usually takes a start-up three years to break even,” she said, adding that 75 percent of start-ups fail in the first three years.
SEED loans may be for as much as $250,000. The SBA will guarantee 85 percent of the first $150,000 of a loan and 75 percent for loans greater than $150,000. SEED will be looking for a business owner’s equity, collateral, and seriousness of purpose. “The ability to repay the loan is the critical factor. Is this a business or a hobby…is it just some extra spending money or going to create and maintain jobs,” said Ms. Bacon.
Commercial lenders (banks and thrifts or savings and loans) may also make government guaranteed loans under ten separate SBA 7(a) programs. The Massachusetts SBA Small Business Resource guide provides the details of each program. These loans vary from $5 million to $250,000 depending on the use and duration. Edgartown National Bank and MV Savings Bank are listed among the SBA’s top lenders based on 2011 figures.
According to the Resource guide, “For loans of $150,000 or less the SBA may guaranty as much as 85 percent and for loans over $150,000 the SBA can provide a guaranty of up to 75 percent.” Borrowers must meet the lenders criteria and the 7(a) requirements. The lender must also state that without the government guarantee the loan would not be made.
SCORE on the Island needs your help. Retired or semi-retired business executives are encouraged to become counselors, people with expertise in the areas of law, accounting, or technology who could offer as little as ten hours of time annually.
To get involved, contact SCORE at 508-696-9687.
To receive business counseling, go to www.score.org and complete a brief application.
Susan Silk is a semi-retired communication consultant. Prior to moving to the Island full-time, she was the founder and president of a communication consulting and training firm in Chicago.