Small Business Week: Financing Your Business

Eric Zarnikow
Director of Financial Assistance, SBA
Thursday, May 21, 2009 11:00 AM

Eric Zarnikow, director of financial assistance for the Small Business Administration, was online to answer your questions on Thursday, May 21 at 11 a.m. ET.

Zarnikow is the Small Business Administration's point person on issues of financing and helps execute the SBA's mission to expand access to capital for small businesses, making it easier for them to get loans or to grow a business.

For more from our Small Business Week series of live discussions, click here.


Eric Zarnikow: Good Morning. I'm Eric Zarnikow, Associate Administrator for SBA's Office of Capital Access. Thanks for joining the Washington Post's Web chat today. I look forward to answering your questions.


Chantilly, Va.: Can I use my 401(k) to start a franchised daycare without any early withdraw penalty? How much of it can I use? Also, what are ways to raise capitals for start a daycare. Thanks.

Eric Zarnikow: There are ways to use your 401(k) plan to help finance a small business. We recommend that you contact your local SBA district office for lenders in your area who may work with you for this type of small business finance. To contact your local district office, please visit SBA's Web site at: You should also contact your tax advisor to make sure that you understand all of the technical issues related to this type of financing.


New York City: Hello.

I have been thinking of applying for financial assistance at the SBA but I have less than a pristine credit report due to a bankruptcy five years ago. For three years now I have watched my online business grow and I have a good business plan. Now I just need more inventory. Do you think I'm a good candidate for an SBA loan? Thank you.

Eric Zarnikow: The SBA provides a partial government guarantee of a loan made by a bank, credit union or small business lending company. The partial government guarantee allows the lending partner to expand access to capital to small businesses that don't fit their conventional loan standards. I would recommend that you contact local SBA lenders in your area. Please contact your local district office for lenders in your area at: and click on local resources.


Eric Zarnikow: Unfortunately, I have to leave at 11:30 for a meeting. However, my colleagues will continue to answer questions on Small Business Week and government contracting. Also, I have preanswered a number of the loan questions that have been submitted.


Evanston, Ill.: Should the Fed and Treasury be trying to resurrect the securitization market? At what point will it be able to function without government propping it up?

Eric Zarnikow: The Treasury department and the Federal Reserve Bank have launched a program to help restore the secondary market called Term Asset-Backed Securities Loan Facility (TALF). The program is up and running and is beginning to have an impact on the securitization market. Also, the Treasury department has committed up to $15 billion dollars from TARP to help support SBA secondary loan markets. These programs are having an impact on the SBA secondary markets where we are seeing improving volume. These markets are important to SBA lenders because they can sell the SBA guaranteed portion of the loan and use the cash to be able to make new loans to small businesses.


Columbia, Md.: If I want to start a small business, what's the first step in trying to get financing? Do you recommend starting with friends and family or going to a bank? What's the maximum loan amount for your most basic loan program?

Eric Zarnikow: We recommend that the first step in starting a small business is to develop a business plan. That is your roadmap on how you would run the business and the first thing that a bank or other financing source would want to see. SBA has many resource partners including its Small Business Development Centers, Women's Business Centers and SCORE chapters that can help you in developing a business plan. Please visit SBA's Web site at: and click on local resources. In addition, SBA's Web site has online tools that can be used to help develop your business plan.

The SBA has a number of loan programs. The microloan program provides a maximum loan size of $35,000. Our 7(a) loan program provides for loans up to $2 million dollars.


Boston, Mass.: There have been a lot of stories in the news about how difficult it is for small businesses to get access to capital. Do you think that's improving since some of the TARP money has been allocated for small businesses?

Eric Zarnikow: Access to capital is always critical for small businesses. TARP money has been used to increase the capital in the banking system which helps banks be able to lend. In addition, the Treasury department has allocated up to $15 billion dollars of TARP money to help unfreeze the secondary market for SBA loans. The secondary market allows SBA lenders to sell the guaranteed portion of an SBA loan and use the cash to be able to make new SBA loans. We are seeing signs of improving activity in the secondary market for SBA loans which should help stimulate new lending.


Fairfax, Va.: What industry sectors typically get the most SBA-backed loans? How do I know which banks are offering SBA loans?

Eric Zarnikow: SBA loans are made across many industry sectors including retail services, manufacturing, service industries, restaurants and hotels and many others. The best way to find out which banks are offering SBA loans is to go to SBA's Web site and click on local resources to find out the district office in your area. The local SBA district office will know who is active in SBA lending in your area.


Washington, D.C.: What are your top three concerns right now as the director of financial assistance at the SBA?

Eric Zarnikow: At this point, the SBA is focused on implementing the provisions of the Recovery Act. We have already implemented reduced fees to lenders and borrowers and higher guarantees on certain SBA loans. These two provisions of the Recovery Act represent over 50 percent of the funding that SBA received as part of the Recovery Act. Since the implementation of these two provisions, SBA's weekly loan guarantee volume has increased by more than 25 percent compared to the weeks prior to the Recovery Act being signed. Earlier this week, we also announced America's Recovery Capital (ARC), a new program that is intended to help viable small businesses that are facing immediate economic hardship with temporary financial relief so that they can keep their doors open and get their cash flow back on track. This entirely new program represents the bulk of the remaining SBA funding from the Recovery Act and we expect to begin to accept applications by June 15th. The maximum loan size is $35,000, and is 100 percent guaranteed by the SBA and interest free to the borrower. For more information, visit SBA's Web site at:


Rockaway, N.J.: Although the SBA has published the Unilateral Authority matrices clarifying what banks could do to help their current borrowers of SBA Loans who are struggling, many (most) are unwilling to provide any meaningful help. Many lenders fear denials or repairs to guarantees and many are just willing to take the 25 percent hit rather than restructuring a loan (within authority) to help maintain a loan and possibly save a business.

What can and will the SBA do to be more proactive and compelling with these lenders, many who have received TARP funds, to have them help those businesses who could survive with a restructured 7A loan? Please be specific.

Eric Zarnikow: The SBA continues to work with its lending partners to encourage them to do appropriate restructuring and deferments for their existing small business loans. Our lending partners have delegated authority to service their existing SBA loans and make appropriate lending decisions related to them.


Merrifield, Va.: I just cashed out my 401(k) to avoid bankruptcy. I want to invest some of it into starting my own business. Is there anything I can do now after I've cashed it out, to avoid the penalties?

Eric Zarnikow: The tax rules related to 401(k) plans can be very complicated. You should contact your tax advisor for advice.


Washington, D.C.: What are the benefits of the new ARC loans announced this week? Can you explain exactly what they are and what are the criteria to prove that I'm a viable business?

Eric Zarnikow: The ARC loans are a loan of up to $35,000 to help a viable small business bridge difficult economic times. The best candidates for ARC looans are small businesses that in the past were profitable but are currently struggling, yet have been making loan payments or are just beginning to miss loan payments due to financial hardship.

ARC loans are made by commercial lenders who are SBA participants. Your best source for an ARC loan is your current lender.


Falls Church, Va.: I have been unemployed on and off for the last year. I have decided to go into freelance work in a variety of areas, basically start my own business as a freelance writer/grant writer/consultant. Do I have to get incorporated in order to say that I am employed by myself? I may need to seek a loan to help get by while I am building a clientele, but everyone asks are you employed? Where and how much do you make? I can't answer those as a newbie in self-employment. How do I handle those questions when seeking loans or any thing where they want to confirm employment? I do have some funds of my own that I am investing in my venture, so it is not as if I am without resources. I just don't have a "job". At what point or what do I need to do to be able to say I am officially employed, when I am just getting started on my own? Also, I have estimated my future income, but again, I can't answer how much I make at this time b/c it takes time to get established. Any advice on how to answer the employment/income questions when you are just getting started as in self-employment?

Eric Zarnikow: I would recommend a local SBA resource partner for help with your specific situation. Please visit SBA's Web site at: to locate a resource partner in your area.


Langhorne, Pa.: Despite the fact that I have been in business for the last 5 years its been impossible for me to get a SBA business loan, despite applying for the loan.

Can you please explain the process cleanly.

Eric Zarnikow: Obviously it's difficult to address your specific situation without knowing all of the facts. The SBA provides a partial guarantee for our lending partners but they make the individual underwriting lending decisions about whether or not to make a loan. I would encourage you to talk with your lender about why they won't approve your loan and try to address their concerns. In addition, we always encourage people to shop around and try other lenders. Your local district office can be a great resource. In addition, we encourage you to talk to other small businesses in your area about who they bank with and ask for a referral.


Eric Zarnikow: Thanks for your questions. I enjoyed having the chance to participate in the Web chat. My colleagues will now answer Small Business Week and government contracting questions.


Dayton, Ohio: For National Small Business Week, how do you pick the winners? For next year, should I apply myself or does someone have to nominate me? Where do I do that?

Eric Zarnikow: The process starts at the local SBA district offices. Small business owners are nominated by local chambers, trade associations, banks, Small Business Development Centers, Women Business Centers and SCORE to name a few. We have also had businesses nominated by their employees. We are starting the 2010 process now, we should have the nomination brochure on our Web site later in the Summer. Keep checking our Small Business Week at Good luck to you!


Alexandria, Va.: Are you looking at revamping the HUBZone program? It's a good program on some levels, but I've seen some recent reports that said it's been mismanaged and needs to be put back on track.

Eric Zarnikow: SBA has taken a comprehensive review of the program and program participants in an effort to eliminate any companies who may not meet the criteria for the program. We feel that the program is a viable program and serves a valuable purpose to stimulate the economy in historically underutililized business zones.


Arlington, Va.: What is the SBA doing to help identify those big businesses that have been acting inappropriately as small businesses in order to get government contracts?

Eric Zarnikow: Several years ago, SBA undertook a comprehensive review of its small business database formerly known as Pronet, now known as the Dynamic Small Business Search engine which is part of the Central Contractor Registration database (CCR). In addition, SBA published regulations which now require small businesses which have been acquired or merged whose size status has changed to recertify their size for any federal contracts that they currently have. Further, businesses are now required to recertify their size status for all long term federal contracts (over five years in duration).

Small businesses also have the option of protesting the size status of any business they feel does not meet the size criteria for the award of a federal contract. You can consult with SBA's size regulations for further information


Eric Zarnikow: Small businesses interested in prime and subcontracting opportunities under the Recovery Act should visit, an online portal with links to Recovery Act informational pages on federal agencies' Web pages and their weekly update reports. At, small businesses can get an idea of the areas that federal agencies are targeting for Recovery Act contracts as well as opportunities at the state and local level.

All federal government contracting opportunities over $25,000 will be posted to FedBizOpps. Small businesses can access this site at: They can also learn about possible subcontracting opportunities by the prime contractor (large or small) that receive the contract award. Small businesses can identify prime contractors for subcontracting opportunities through the SBA Subcontracting Network (SubNet) at

Small businesses seeking contracting opportunities can also contact the Office of Small Disadvantaged Business Utilization (OSDBU) in any of the procuring federal agencies. These offices assist small businesses in answering questions about how to obtain prime and subcontracting opportunities at their respective agencies. For a list of OSDBUs in the procuring federal agencies and their contact information, visit


Eric Zarnikow: Thanks for allowing us to participate in today's Web chat with the Washington Post. Thanks for your questions. For more information about SBA's programs and services, please visit SBA's Web site at:


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