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Small Business Administration lending increases

Michelle Robey and Patty Nappo secured a $1.9 million SBA loan to help make their dreams of business ownership in Medford, New York come true. (photo by Judy Walker)

Michelle Robey and Patty Nappo secured a $1.9 million SBA loan to help make their dreams of business ownership in Medford, New York come true. (photo by Judy Walker)

LONG ISLAND, N.Y. — Michelle Robey and Patty Nappo secured a $1.9 million loan to become Dairy Queen franchisees, opening a DQ Grill & Chill in Medford, New York at the end of last year. The sisters added $600,000 of their own funding to the Small Business Administration loan that they obtained through TD Bank.

Robey and Nappo are part of a growing number of entrepreneurs and business owners that are obtaining Small Business Administration loans to help make their entrepreneurial dreams come true.

The U.S. Small Business Administration had approved $15.2 billion in loans in fiscal year 2018 by mid-May, up 1.9 percent from the $14.9 billion approved in the same period in fiscal 2017.  While the year-to-date approval figures published weekly by the administration show increases each year since 2013, the 2018 percentage increase is smaller than the 2017 percentage increase of 9.9 percent.

Year-to-date approvals of loans to minorities in fiscal 2018 were 32 percent of the total, up from 31 percent for the same period in the prior year.

“I think since the recession, we have seen the birth of the entrepreneur,” said Beth Goldberg, director of the New York SBA district office, which serves New York City and Long Island plus seven counties of the Lower Hudson Valley. “There are a lot of people who never expected to be in business for themselves; they expected to be in corporate America forever, but they were forced to take a different path.”

Anecdotally, Goldberg has also noted a desire among millennials to start their own businesses.

“As the mother of millennials, I see many millennials who don’t want to work in corporate America,” she said. “They want to go out on their own, and there is robust entrepreneurial energy in the district here – in New York and Long Island and the surrounding counties – that is fed by tech incubators and life science incubators.”

The increase in SBA lending is an indication of the need for capital in the market, Goldberg said.

SBA loans are meant for small businesses that fall just shy of banks’ traditional underwriting standards.

These prospective borrowers “might not have a strong collateral position, or they may have good experience from another source but not enough of a track record in their business, or they may have a weaker – though not terrible – credit score,” Goldberg said. “The SBA comes in with a guarantee when the bank is not quite sure if it wants to lend money. The tool is appropriately designed to help businesses on the border of strict banking underwriting standards and who need a little help.”

There are several SBA loan products, but on the popular, basic 7a loan, the federal government provides a guarantee of up to 75 percent of up to a $5 million loan (or up to $3.75 million).

The SBA conducts outreach to lenders “to make them comfortable with the SBA loan,”

The SBA also counsels would-be borrowers on “how to approach banks – what they should say,” Goldberg said. “I use the analogy that it’s like shopping for shoes. There are different shoe stores; not everyone has the same product. The underwriting criteria may not be perfect for your business.”

Robey and Nappo went to several banks seeking SBA loans before TD Bank said yes.

While Nappo has 25 years of experience in the food franchise business, having served as a general manager in McDonald’s and Wendy’s, Robey’s background is in accounting and finance.

Because of her financial experience, she knew from the beginning that an SBA loan was the best route to take.

“We did a ground-up construction but we don’t own the land,” she said. “A lot of banks would not fund the project even with an SBA guarantee, because there is not enough collateral since we don’t own the land.”

Companies that meet traditional underwriting standards would be better-served by getting a traditional loan, because an SBA loan comes with fees.

“The money is more expensive,” Goldberg said. “Think of it as an insurance policy on your loan; you pay an extra fee.”

The DQ Grill & Chill in Medford, which employs 90 people, is off to a strong start, Robey said.

“We’ve been extremely busy, which has blown our expectations out of the water in terms of sales,” she said.

The sisters’ goal is to open five Dairy Queens in Suffolk in total.

“We are looking for space for No. 2,” Robey said, noting that she will likely pursue additional SBA loans.

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