Transitioning to high-tech lending


Small business lending went through a transition during the 1990s.

At the outset of the decade, lenders were quite comfortable lending against hard assets. There were plenty of hard-asset opportunities to lend against. As the economy transitioned from manufacturing to the service sector, those hard-asset opportunities shrank. Lenders had to look at cashflow and collateral shortfalls. The SBA was a perfect way to help banks to do that kind of lending. Our guarantee substituted for the collateral shortfall. By doing so, the small business service sector in northeast Ohio flourished and continues to flourish as capital is directed that way through SBA programs.

As we enter 2020, we now have a similar situation with high tech and early stage start ups. That segment of the economy has grown and needs to attract not only equity financing, but debt capital as well. A good balance sheet needs to support debt and equity.

Debt capital might be a little harder to attract than it was in the 1990s because high tech / early stage start-ups often have negative net worth due to heavy up-front development costs. The SBA can again play a role. Our guarantee along with a first lien on the patents of the company can overcome the negative net worth. The patents, though, must be evaluated by an independent third party and have a greater value than the negative net worth of the company. Coupling that with a realistic cash flow projection may be just the ticket for a much-needed line of credit or term loan under one of our programs.

For information, call 216-522-4172.


District director

SBA Cleveland District Office