Bob Dylan once sang, “People disagree everywhere you look, makes you want to read a book.” OK, it’s not Dylan’s heaviest lyric. But the question of whether to get into business, borrow to expand a business, apply for an SBA loan or sit tight in a constricting corporate cubicle is not going to be answered between hard covers. Not in 2002.

Some with wrinkled brows point to Enron, Kmart and post-Sept. 11 jitters as reasons for caution. Others say, “Been there, done that, deal the cards.” Small-business owners are looking to expand, and employees who are feeling underappreciated are looking at 2002 as the year they become the boss.

Baby bulls can take heart from the local SBA office’s first-quarter numbers, showing $74.2 million in loan volume, compared to just $48.2 million for the same period in 2001, and $52.8 million in the transition year of 2000.

Rancho Santa Fe National Bank President James Boyce has 40 years of experience looking at economic trends and is bullish on 2002, especially in the San Diego region. “We’re planning for a modest increase in earnings and loans of about 10 percent this year,” he says. The local economy has shown resilience even through 2001. The local unemployment rate is lower than the nation’s, and Southern California shows more strength than Northern California, all reasons for optimism.

Bankers love making SBA loans for a simple reason: they’re guaranteed in large part, depending upon the size of the loan. Generally, the guarantee covers at least 75 percent, and in some cases up to 90 percent.

Since time is of the essence, would-be borrowers should first evaluate their bank. The SBA has three designations for lenders: guaranteed program lender, certified and preferred. Expect the fastest service from a preferred lender; this is a bank making decisions on behalf of the SBA in as little as 24 hours. For certified lenders, the SBA takes a quick look at the numbers; guaranteed program lenders must have the application reviewed more thoroughly by the agency.

SBA loans are not geared toward Fortune 500 companies, which are presumed to have a cozy relationship with their bankers. SBA loans are generally for expanding businesses with some track record of success. Restrictions on the “small” business’ size include that a manufacturer may not exceed 1,500 employees and a general or heavy construction firm is limited to $27 million in average annual receipts.

Conversely, lenders shy away from doing SBA loans for startups, although Boyce says experience working for someone else may substitute. This works in the case of a general manager of a widget company who wants to go out on her own.

A common misconception is that being “too rich” will disqualify an applicant. Larry Belt, the SBA manager at Rancho Santa Fe, says the personal resource rule has been relaxed. Here’s the “too rich” formula: For loans under $250,000, principals can have two times the total financing package in liquid assets (i.e., other than real estate) or $100,000 (whichever is greater). For loans up to $500,000, principals can have one and one half times the package in liquid assets or $500,000; and for loans in excess of $500,000, an amount equal to the SBA loan package or $750,000, whichever is greater.

If the banks turn a cold shoulder to your big idea, Craig Francis says he’ll lend you an ear. “I make a good income on second looks and turndowns,” he says. Francis is the owner of Francis Financial, a loan broker who closed $75 million in loans in 2001. Of the total, Francis says half the amount was in SBA loans, the rest commercial.

“There are 35 to 40 lenders in San Diego, all of whom have SBA departments,” he says. “It’s cutthroat competitive. You need a hide like a rhino, and also need to be fast as a bullet.” Francis, who calls himself a “recovering banker,” helped Bank of Commerce become an SBA powerhouse, but lost 80 percent of his portfolio in the major recession of the early ’90s. Realizing small business lending was in his blood, he struck out on his own and hasn’t looked back.

Although his deals typically run from $200,000 to $800,000 and up, Francis says he won’t turn his nose up at a $50,000 deal. “I take ’em all; that $50,000 deal will be the $500,000 deal later on.”

Francis has an upbeat message for applicants who come to believe that no one is interested in their business: it’s a jungle for lenders out there. “If I start out on a deal, if I don’t have competition at the start, I’ll have it at the end. If I don’t have competition from front to back, it’s a miracle.”

SBA loans are advantageous for small businesses with tight cash flow and limited collateral, and they offer longer terms than conventional bank loans. Although SBA loans can carry higher interest rates than banks offer their best customers, an SBA loan doesn’t have to be more expensive than a bank loan, says Kurt Chilcott, president and CEO of the CDC Small Business Finance Corp.

SBA loans come in a variety of flavors. The 7(a) loan is a general purpose business loan from $50,000 to $1 million, with a maximum 2.75 percent over the prime rate. These 7(a) loans can be used to expand or acquire a new business, refinance debt, buy equipment, or provide working capital. The expected down payment is 30 percent for a startup, or up to 20 percent for expansion.

The 504 loan is attractive to businesses looking to finance a building. But note: the building need only be 51 percent occupied by the borrower on existing real estate and 60 percent occupied for new construction. Typically, 504 loans run from $125,000 to $10 million for a 20-year term.

In a typical 504 deal on a $1 million transaction, says Chilcott, a bank provides 50 percent variable rate financing, CDC provides 40 percent of fixed rate financing, and the borrower puts down 10 percent or $100,000.

But what if a small business is just looking for birdseed to spread its wings and get off the ground? The CDC has microloans of $35,000 and less, “typically for businesses that can’t get any type of bank loan,” Chilcott says.

The rate tends to be higher, prime plus three percent, but that beats the 18 percent often paid by startups that finance their businesses on credit cards. “And the SBA might be able to refinance that credit card debt,” Chilcott adds.

The CDC lender also advises borrowers not to be intimidated by the SBA loan process. California leads the nation in SBA funding, and “San Diego has some of the best SBA lenders in the U.S., and we answer pretty quickly.”

Another “non-bank bank” option is the California Southern Small Business Development Corp., a 501c3 nonprofit licensed by the state of California to make loan guarantees. A $33 million trust fund secures loans made by Cal Southern and other similar corporations under the state program.

Mike McCraw, president of Cal Southern, says borrowers can apply for loans with a maximum seven year term for working capital, lines of credit, revolving accounts or acquisitions, but no real estate.

McCraw says he works with “20 or so active lenders” and will do startups with a track record of experience and 20 percent to 30 percent capital. “If they have expertise and some cash of their own, they’re a pretty good prospect,” says McCraw. “If you’re a business owner, and the banks don’t think you’re quite strong enough, come to us.”

Last year, Cal Southern approved upwards of $10 million in small business loans, a volume comparable to 2000. The average loan size is about $120,000. Cal Southern typically acts as a conduit for banks that do the actual lending. “We keep the file,” McCraw says. Cal Southern’s asset portfolio includes a $1 million investment from the Jacobs Foundation related to Market Creek Plaza, a shopping center at Market and Euclid anchored by a Food 4 Less.

But if the banks won’t help you, and you don’t fit into the SBA’s various lending classes, you could find yourself in Michael Jones’ office. Jones is a principal in the investment banking firm of ProFinance Associates Inc. — www.profinance.com.

Jones’ ProFinance is a broker-dealer for “high gross margin, repetitive income service” businesses, such as cable, the security alarm business, and telecoms. “We’re an intermediary, trying to find the smart money,” Jones says.

Jones says the non-SBA lending market is “as bad as I’ve seen it in my lifetime,” especially for companies with fewer tangible assets, or whose assets are in intellectual property.

The problem, Jones says, is that the Federal Reserve and layers of regulators have created a “credit crunch” through oversight. “They warn banks not to make risky loans, swarm through the bank, criticizing loans and requiring significant set asides against these loans, so that the bank’s effective costs dramatically increase.”

Consolidation of even big banks like Chemical and Manufacturers Hanover into a bigger bank like JP Morgan/Chase inhibits risk taking further, and smaller banks, Jones says, have been warned off from participation loans. Accordingly, Jones’ firm specializes in loans against cash flow and accounts receivables, which may be the main assets in fast-growing companies.

Jones says ProFinance lending is in the $50 million-a-year range, and he expects business to grow as more U.S. businesses are based on cash flow and non-tangible assets. Those seeking Jones to broker their loan should be looking in the $3 million and more range.

With economic times improving, it is worth a business owner’s time to investigate all financing alternatives. After all, there are probably as many lenders interested in the discussion as Bob Dylan albums in the market.