Small businesses are a pillar of the American economy. According to the U.S. Small Business Administration, they make up 99.9% (32.5 million) of all businesses in the country. Yet as large as the small business community is, there are many challenges that individual owners face. One of those challenges is getting access to the capital required to start a new business or grow an existing one.
“Small businesses commonly face the issue of not having access to capital for operations, growth and expansion," explained Mark Morales, an SBA loan specialist at City National Bank.
This is where SBA loans — loans backed by the U.S. Small Business Administration — can make a big difference for the small business community.
When small businesses reach out to banks for funding, their risk profile — or how likely they are to be able to pay off a loan — is usually a deciding factor in a loan's approval. Lending to even the best small businesses inherently carries higher risk, as there's no guarantee that a smaller firm will continue to be successful through various market cycles, and most do not have the luxury of fulsome capital reserves to take them through a downturn.
The SBA's loan programs help to reduce lender risk, allowing small businesses to increase their chances of securing funds. Utilizing SBA loans helps businesses get the capital they need while reducing the risk that banks face when providing them with loans.
“SBA loans, or government-guaranteed financing, provides banks with a guaranteed reimbursement on uncollectable loans," said Morales. “This allows for more flexibility for banks to fund small businesses."
SBA loans also give small businesses a chance to expand without the burden of high interest rates they might have to pay if they financed with credit card or alternative lenders.
Being able to secure loans from trustworthy lenders has proven crucial for small businesses like John Kelly Chocolates, a Los Angeles based boutique chocolatier.
In 2004, John Kelson and Kelly Green – owners of John Kelly Chocolates – used their passion for creativity, quality and sharing with others to start their gourmet chocolate business.
For nearly two decades, their business has been a staple of the Hollywood-Los Angeles community. Their sweet creations have found their way into coveted Oscar "swag-bags" and continuously satisfy customers' cravings at what are now their three boutique locations.
While the chocolatiers have earned popularity and awards, things weren't always easy for the business — especially when Kelson and Green were trying to expand their operation.
“When we worked with large banks, they claimed to be for small businesses," explained Kelson. "But they would set up a matrix that made it difficult to qualify, and no one personally took the time to really look at the numbers to help you out. This forced us into very unforgiving loans with high interest rates that were hard to pay off."
While the company was ready to grow, John Kelly Chocolates was held back by the hefty interest rates of that previous loan. That's when they got help from Morales at City National.
"With goals to expand the business, they needed to find other options that could get them out of a situation where capital was mainly going towards interest for repaying a loan," Morales recalled.
He took the time to get to know Kelson and Green, their business and what their goals were. This in turn enabled him to help them strategize a way to grow their business with the right financing from an SBA loan.
“Mark Morales knew us and our story, so he reached out and said, 'Let's try again with City National.' We were looking for an SBA option and it's something we weren't able to obtain before," said Green. “Once we spoke with Mark and started the process, it all came together."
The right loan meant they could continue to achieve their goals. In addition to their home store and factory in Hollywood, they now have retail stores in Santa Monica and Beverly Hills.
“I actually enjoy talking to people at City National, and I don't dread it. I feel like they do care about our business and how we are doing," explained Green. “Our interactions are always a pleasant experience and I can't always say that about all banks we've worked with."
Small businesses are anything but small – they have a big impact on the economy and a positive effect on the livelihoods of communities. That's one reason why City National works to help small businesses – like John Kelly Chocolates – across the nation.
Besides being an expert on SBA loans, Morales has a passion for assisting diverse-owned businesses.
He holds a statewide role as chair of the diversity task force of the California Department of Insurance and has worked with the Los Angeles LGBTQ Chamber of Commerce and many more organizations over the past two decades to promote equity in business ownership.
“The secondary part of my role is to teach SBA to diverse business groups and communities throughout the city," said Morales. "And I take every opportunity to be able to talk about SBA and supplier diversity."
Supplier diversity is a concept that encourages business to increase equity in the world by making sure they do business with diverse-owned companies.
“Supplier diversity is my passion and SBA is my job, so I'm able to merge the two to help make the world a more equal place," Morales said.
This article is for general information and education only. It is provided as a courtesy to the clients and friends of City National Bank (City National). City National does not warrant that it is accurate or complete. Opinions expressed and estimates or projections given are those of the authors or persons quoted as of the date of the article with no obligation to update or notify of inaccuracy or change. This article may not be reproduced, distributed or further published by any person without the written consent of City National. Please cite source when quoting. © 2022 City National Bank. All Rights Reserved.
City National Bank Small Business Administration (SBA) Lending Programs are subject to credit and collateral approval and limited to business customers and collateral located in. A due diligence fee may be required upon approval, other fees and other restrictions may apply. Eligible borrowers must meet all criteria as defined by the Small Business Administration (SBA). Terms and conditions subject to change.