Interest Free, Deferred Payment Loans For Contractors
by Kelly Faloon
February 18, 2010
Small businesses such as Wisconsin-based E.C. Merrill Inc. can obtain interest-free loans from the Small Business Administration to free up cash. Owner Jay Merrill (right, with Mike Norris) used Success Group International’s Business Plan Template to prepare his application.
The plumbing residential service and replacement market in the Oshkosh, Wis., area had been pretty steady until about the fall of 2008. Plumbing contracting businesses such as EC Merrill Inc. had cleanup jobs on their books from area flooding. But when that business “dried up” and the recession continued, those same plumbing contractors found it tough to keep cash flowing.
EC Merrill’s territory covers a 15-mile radius around Oshkosh and Fond du Lac — about 75,000 households, said third-generation owner Jay Merrill. With 8-10 percent unemployment in the area, many of those homeowners opted to patch up boilers and water heaters instead of replacing them or try to fix the problem themselves.
“Every dollar that came in went right out again to pay bills,” Merrill noted. There was no investment capital left for advertising or marketing or buying new trucks or investing in training for his three employees.
The company used to be strictly a mechanical contractor, but ventured into the residential plumbing repair and replacement business in the mid-1990s. Now 90 percent of Merrill’s business is comprised of residential repair/replacement (a small portion is remodeling), with only 10 percent of the business in the light commercial segment.
It was about this time that Merrill received a letter from Terry Nicholson of Success Group International and Plumbers’ Success International (PSI). PSI was reaching out to inform contractors of a new loan program from the Small Business Administration (SBA).
The America’s Recovery Capital (ARC) loan program is funded by the stimulus legislation signed in early 2009. This temporary program (which ends Sept. 30, 2010, as long as funding is available) provides interest-free, deferred-payment loans of up to $35,000 to small businesses to be used for principal and interest payments on existing, qualifying debt and/or loans.
Loan proceeds are provided over a six-month period, and repayment of the principal is deferred for 12 months after the last disbursement. Repayment can be extended for five years.
With this program, borrowers can redirect cash flow from making loan payments to investing in their businesses.
HELP FROM A FRIEND
But a loan is a loan, and a loan requires paperwork. And that’s where PSI stepped in and helped Merrill out — PSI provided a full packet with all the information he needed to pull the necessary financials together to present to his bank.
“The process was very simple,” Merrill said. “The most time-consuming part was finding a bank that would process the loan.”
Not all banks process government loans; Merrill’s own bank didn’t, so he spent a few hours visiting other banks in the area. He was successful with the third bank he went to.
“I went in and asked if [the bank] would like to be an investor in my business,” he said. With all the data needed at Merrill’s fingertips, courtesy of PSI’s Business Plan Template, the bank was more than happy to give him the loan.
Merrill applied for the loan in late July and closed on the loan in mid-August.
So what advice does Merrill have for his fellow contractors who may need an influx of cash to stay in business?
“The key is to be proactive; don’t wait until you can’t pay your bills,” he said. “It’s an easier process than you think it will be.”
He suggests going to smaller banks in the community because they are looking for business. “A good banker understands that he is providing a service to you,” he said.
In fact, if a bank doesn’t normally process SBA loans, it can work with its nearest SBA office to become an SBA lender.
Another bit of advice: “Before you walk in the door, make sure you have all your ducks in a row,” he noted. You’ll look more professional with your financial information presented in a clean, orderly document, rather than stray pieces of paper crammed into a folder.
Professional extends to your attire also. “Don’t go into a banker’s office with dirty coveralls, looking like you just came in from the job,” Merrill noted. “At least go in with a clean, pressed uniform.”
Make sure you have a proven method to stay out of debt. Turning to PSI like so many other profit-minded contractors, and the strategies they have shared to weather the storm is helping E.C. Merrill.
SIDEBAR: SGI MAKES BUSINESS PLANNING TEMPLATE AVAILABLE
Success Group International is making its Business Plan Template available for plumbing, HVAC, electrical, and roofing contractors. The 24-page template (in Word format) is a systematic approach to complete the ARC loan application; just plug in your company’s financial and market data.
The template includes an executive summary; a general company overview; an explanation of products and services; marketing, operational and financial plans; an explanation of the company’s management and organizational structure; and personal and company financial statements.
It also includes a list of possible appendices you may need to include, such as advertising and marketing materials; industry studies; copies of leases, contracts, and agreements; previous two years’ business and personal tax returns; previous two months’ bank statements; detailed list of equipment owned or anticipated purchases; testimonials from customers; and documents that provide proof of legal ownership of the business.
Along with the template is an Excel document containing four spreadsheets to help you complete the application or include in the appendices: promotional budget and sales forecast; personal and business financial statements; business financials for two years; and a financial plan (12-month profit-and-loss projection as well as a five-year profit projection).
Access to the template and spreadsheets are part of the power of being in a networking group of other profit-minded, successful contractors. During downturns and recoveries, SGI has proven its value to contractors by providing them information and knowledge that the average contractor wouldn’t learn about on his own.
SIDEBAR: ARC LOAN REQUIREMENTS
To be eligible for the loan, the Small Business Administration requires the small business to be an established business (the program is not designed for start-ups); have financial statements demonstrating profitability in one of the last two years; and be able to project sufficient cash flow to meet current and future loan payments over a two-year period from loan approval.
Eligible businesses also must demonstrate immediate financial hardship; your lender will analyze and confirm that such a hardship exists. Examples of financial hardship include:
• Loss or reduction of customer base;
• Increase in cost of doing business;
• Loss or reduction of working capital and/or loss or reduction of short-term credit facilities;
• Inability to restructure existing debts due to credit restrictions;
• Loss or reduction of employees; and
• Loss or reduction of major suppliers.
For more information about these loans, visit www.sba.gov/recovery/arcloanprogram. For help in applying for these loans, contact PSI at 888-347-0938.
Kelly Faloon
