When Connally Bradley left a community development corporation in Columbia in June 2017 to become executive director of Greenville-based Appalachian Development Corp., he and his lending and administrative team got down to business – fast.
For the fiscal year ending Sept. 30, 2018, Bradley’s organization placed first among development corporations in the state for dollars loaned through the U.S. Small Business Administration’s 504 program. The Greenville office made $13 million in loans to small businesses over the 12-month period, the latest being To Dye For, a hair salon on West Court Street.
Bradley’s office will be honored for its achievement at an SBA banquet in the spring. The honor, he said, is in keeping with his organization’s mission to “help small businesses receive financing at affordable rates and terms.”
Appalachian Development Corp. serves its borrowers through two key financing vehicles, the Appalachian Loan Fund (ALF) and the SBA’s 504 program.
Working with a local bank or credit union, the Greenville office provides financing through its Appalachian Loan Fund ranging from $50,000 to $200,000, for a maximum 40 percent of a project’s total cost. For its part, the bank or credit union typically finances 50 percent of the total and the business borrower makes a 10 percent equity contribution.
Under SBA 504 loans, which also provide up to 40 percent of total project cost, the
federal agency’s financing ranges from $100,000 to $5 million, and up to $5.5 million for manufacturing. As with ALF, the participating financial institution typically puts up 50 percent of the cost and the borrower contributes 10 percent in equity. Proceeds from ALF can be used to finance land, physical plant, machinery, equipment, and working capital.
SBA 504 proceeds may be used for the acquisition or renovation of capital assets including land, buildings, and equipment. Eligible “soft” costs such as architectural, engineering, and environmental fees can also be financed. The 504 funds cannot be used for working capital.
Entrepreneurs who apply for loans under either program benefit by contributing less equity than they would with traditional loans, which many times require a 20 percent contribution. They also benefit from fixed-rate financing for a portion of the loan and from longer terms that help manage cash flow.
“I would say the long-term fixed-rate would be a huge incentive,” Bradley said, with SBA 504 loans offering a 10-year term for equipment and up to 25 years for real estate. Typically, ALF offers a three-year term for working capital, seven years for equipment, and 15 years for real estate.
Banks and credit unions also benefit from partnering with his organization, Bradley said. Serving as the primary lender alongside Appalachian, “their risk has been mitigated” by a project’s 50 percent loan-to-value, the SBA portion of the loan doesn’t count against the institution’s legal lending limit, and its customer gets to contribute less equity, Bradley explained.
And, because both the Appalachian Loan Fund and the 504 program require borrowers to create new jobs, the community in which the business operates benefits from economic growth and an expanded tax base, he noted.
Under ALF guidelines, a business owner must create or retain one full-time job other than the owner’s per $25,000 borrowed, within two years of closing. A $100,000 loan, for example, must result in four jobs.
Under 504 guidelines, one full-time job must be created or retained for each $75,000 loaned. If the borrower is a manufacturer, one job is required for every $120,000.
The SBA is especially interested in hearing from business owners in rural areas, Bradley said, believing that such communities are significantly underserved. “That’s a huge emphasis right now,” he said. Business owners who want to apply for a loan can do so at their participating bank or credit union or through Appalachian Development Corp.
“All three get around the table and talk about this together so we all hear the same thing at the same time,” Bradley said, with applications generally closing within 45 to 60 days. Technical assistance, such as help with an owner’s business plan, is also available.
Appalachian Development Corp.: 880 S. Pleasantburg Drive, Suite 3E. (864) 382-2350.
Special Thanks to Neil Cotiaux for article context.