Fourth generation banker Bob McGee, president and CEO of Southwestern Business Financing Corporation, sees a rough year ahead for small businesses in Arizona. When McGee says rough, he means rough compared to Arizona’s customary booming economy.
“We may only have 2 to 3 percent growth in the state, but as long as we have water and electricity to run air conditioners, people are going to keep moving here from Chicago and Minnesota,” he says. “Yes, businesses are going to have a tough time, but I still do not think it will be anywhere near as bad as the past couple of bad times we’ve been through.”
McGee, whose firm is a nonprofit Certified Development Company approved by the Small Business Administration to make low-risk 504 loans for fixed-asset projects, says the downturn has hit home. Southwestern loaned $90 million for projects in 2007, but SBA approvals are down 40 percent, while the actual loans he funded are off by 10 percent.
Surprisingly, McGee sees small businesses becoming more attractive in today’s economy.
“When times get tough, that’s when people start thinking about owning their own business,” McGee says.
Businesses with fewer than 20 employees comprise more than 90 percent of Arizona’s economic landscape, but they provide more than jobs.
“It’s the way people achieve a dream,” McGee says, “because many people are happy in their job, but their real dream is to own their own business and be their own boss.”
During his career with Southwestern, McGee has helped create more than 7,000 jobs through the funding of SBA 504 loans. Since its founding in 1981, the company has funded the purchase or construction of more than $1.4 billion of buildings for businesses. Most of his deals involve construction, which today is funded by a commercial bank.
“I don’t fund until the building is finished,” McGee says.
McGee cites three factors for current market conditions. One is a complete lack of secondary financing, as potential investors poured $4 trillionintomoney markets.
“That puts a crimp in my kind of lending, and more important, the banks I work with,” McGee says.
A second factor is that banks are reluctant to make any loans, and the third reason, he says, is that a large percentage of business owners considering the purchase of a building are “terrified” by what they see on the evening news and are waiting for the market to hit bottom.
“You can’t out-time the market,” McGee says. “The way I know when it bottoms is I look back a year later and say, ‘Oh, that’s where it was.’ ”