The Contos family knows the bitter taste of the credit crunch.
Plans were drawn up for the third of their Golden Star Family Restaurants on land the family had owned for years. Then their longtime bankers turned down the Contoses' request for a $1.5-million loan, offering much less than they needed despite their good credit record.
"We thought it was a sure thing," said Aristi Contos, whose father, Dimitrios "Jimmy" Contos, opened the family's first Long Beach eatery in 1963 after immigrating to Southern California from Greece.
Like many small-business owners, the Contos family has learned a tough lesson: In today's credit markets, there are no sure things.
Some 72% of small-business owners seeking loans say it is harder to borrow money now, according to a September survey released by Discover Financial Services.
As banks struggle with their own credit problems, even business borrowers with good credit are finding that they may have to pay more for a commercial bank loan, that they are offered less money than they need or that they are shut out all together. Two popular sources of credit -- home equity loans and credit cards -- have been drying up for months.
"This is totally unprecedented, and no one knows where this will end," said Chris Larsen, chief executive of Prosper Marketplace Inc., which runs the online lending site Prosper.com.
Cash almost always will be available from one source or another, but the cost to rent it may be too high to make sense. Increasingly, small-business owners who can't wait out the credit squeeze are turning to alternative sources for the money they need
In August, the Contos family got $1.7 million from a federally guaranteed Small Business Administration loan. Here is a look at the SBA program and a handful of other options to consider.
SBA loans. This kind of loan is made by a bank, which receives a guarantee from the SBA that some of the money would be paid back by the U.S. government if the borrower were to default. The goal is to encourage banks to provide loans for small businesses that might not qualify for a standard commercial bank loan, which can be less expensive than SBA-backed loans.
The maximum amount is $4 million for the SBA's fixed-asset loan, the so-called 504 program; and $2 million for the other main loan, the 7(a).
The Contos family went to Excel National Bank of Beverly Hills, which is bucking the trend for the time being by aggressively soliciting borrowers for its SBA loans.
"Because we are in the fortunate position of being able to make loans, we are just seeing a flood of applications," said Brian Carlson, chief executive of the small bank.
SBA loans in the pipeline have almost tripled to $230 million, said Carlson, who has added 20 employees to handle the volume. About 75% of those loan requests will receive funding, the usual ratio even though credit standards are tighter, he said.
That's not the case at many other local SBA lenders.
As the secondary market for the government-backed loans has cooled, the number of loans made in the SBA's Los Angeles district, which includes Los Angeles, Ventura and Santa Barbara counties, dropped about 30% to 3,181 for the nine months ended June 30, the latest numbers available. District Director Alberto Alvarado expects a similar drop for the full fiscal year ended Sept. 30.
Check the SBA website, at www.sba.gov, for fees and interest rates for individual loan types, including those targeted at military veterans.
Despite a reputation for ponderous paperwork, the SBA loan process was so easy that Aristi Contos was suspicious at first. However, the new restaurant project is on hold for now because of the poor economy, Contos said, although she hopes to break ground next summer.
"We want to get off on the right foot," said Contos, who has helped manage the family's restaurants since she was in high school.
Micro loans. Several Southern California nonprofits offer small loans for small businesses or individuals who want to start a new business. Some of these also are backed by the federal government, such as the SBA micro loan, which offers borrowers up to $35,000.
The Valley Economic Development Center, www.vedc.org, is one source for that loan. The VEDC also manages a number of other loan funds, including one for revolving loans from $25,000 to $700,0000.
The Jewish Free Loan Assn., www.jfla.org, manages five little-known micro-enterprise funds. The Los Angeles group, part of an international network of interest-free loan agencies, got its start in 1904. It makes interest-free loans for as much as $15,000 for start-ups or existing small businesses.
Organizations such as SCORE, www.score.org; the Assn. of Women's Business Centers, www.awbc.biz; and small-business development centers, www.asbdc-us.org, are sources to learn more about financing your small business.
Person-to-person online loans. These are new options based on an old concept: a group of individuals lending to one another increases the likelihood loans will be repaid.
