When Fred Richstien II sought financing last fall to expand his business in Adams County, he heard about a federal loan program that might help him achieve his vision.
By summer, he had a financing package in hand for his company, Laboratory, Analytical & Biological Services, or LABS, of New Oxford. It was worth the wait, he said, because of the below-market interest rates on the Small Business Administration 504 loan and his ability to invest in new equipment.
“There was more paperwork,” said Richstien. But, he added: “To grow, you have to go into debt a little bit, so filling out all the paperwork was worth it.”
The Adams Economic Alliance helped facilitate the $338,000 loan, which was packaged with a loan from Gettysburg-based ACNB Bank and equity from the company for a total deal of $845,000. LABS does water testing for governments, businesses and residents in Pennsylvania and Maryland. It tests up to 1,800 water samples per week. Richstien said he intends to add two workers before the end of the year to accommodate his expansion.
Kaycee Kemper, Adams Economic Alliance vice president, said other organizations in Adams County have done SBA 504 loans for local companies. But this is the first time that the Alliance was able to get a deal across the finish line. Previous attempts faded for various reasons, such as appraisals not coming in where they needed to be, Kemper said.
The money will allow the environmental testing company to purchase and renovate the former Interstate Paving facility in the Conewago Business Park in New Oxford. LABS also will buy equipment.
“Certainly, the redevelopment of existing Adams County properties is one of our priorities,” Kemper said in a statement. “This particular property appraised well and presented a golden opportunity for LABS.”
The $845,000 package includes 40 percent in the form of the SBA loan, 50 percent from the bank and 10 percent in equity from LABS. The Adams Economic Alliance is not certified to do the SBA 504 loan on its own, so it partnered with the EDC Finance Corp. of Lancaster County.
Lyle Hosler, a vice president for the Lancaster economic development entity, said such arrangements are normal. His organization partners with groups in Cumberland, York and Adams counties where the staffing and funding at various agencies do not allow for the certification process. Instead, they can work with his group, and it can get the SBA 504 done by helping others “efficiently access” the program.
Kemper said the arrangement with the Lancaster group worked out great because it is too costly for the Adams Economic Alliance to go through the lengthy certification process and then have the staff in place to handle it. The 50-40-10 arrangement also meets a goal of not having a government program compete with commercial lenders, who take the first lien position with their 50-percent stake, and the SBA 504 then takes the second position, Kemper said.
She said her Adams County group can work with companies “to figure out if it is a good fit.” She also can assess whether a state program under the Pennsylvania Department of Community and Economic Development might be a better option. She works with a variety of firms – including manufacturers, distribution companies and agricultural enterprises – to help them determine which route to go. But if they qualify, the SBA 504 can be a great choice, she said.
“The real benefit of this type of financing is that you get a fixed rate for the life of the loan,” Kemper added.
For the borrower, the 50-40-10 loan arrangement also is better than most conventional loans, where lending institutions might require a company to put in a minimum of 20 percent equity. The 10 percent requirement with the SBA 504 gives companies some extra cash to invest in equipment or other needs, Hosler said. The typical loan ranges from about $500,000 up to a few million, he added.
The companies that get approvals usually can demonstrate that they are growing and have a need for more space or to buy equipment, Hosler said. The interest rates – which change daily – have been ranging at about 3.5 percent for a 20-year fixed rate; a 25-year loan has been about 3.65 percent, he said on Aug. 13.
Loans with 10-year terms also are available, according to a statement released after the LABS deal went through in early August.
The lower interest rate and the 10 percent requirement are the two main attractions, Hosler said.
Richstien said he liked working with local organizations and people he knows to expand in an area he cares about. The company was founded more than 20 years ago, when there were more community-based lending institutions then there are today, he said. As banks merged and then merged again, he committed to ACNB, formerly known as Adams County National Bank. He found out about the SBA 504 through networking, he added.
“It was a lot of due diligence and a lot of paperwork,” he said. “But it was worthwhile in the long run.”