HOW TO OBTAIN AN SBA LOAN, PART 3

A person who wants to borrow from a lender who finances SBA Loans needs to understand these qualifications:

Cash Required (Cont’d from Part 1, Number 2):         

Borrower must have the cash needed for the transaction in a bank account for three months

prior to closing.  If the Borrower does not have all the cash, the Borrower can qualify with a gift

from another source.  On a case-by-case basis, borrowing the funds from investment property or

another source may qualify the Borrower

Management:     

On a case-by-case basis, a management company instead of hands on supervision of the business may be acceptable.

An alternative is to hire a W-2 Employee to manage the business (The Employee must prove competence with a resume).

These options are important where the borrower does not live near the business or owns multiple businesses.

Ownership:

Any person who owns 20% or more of a business or will own 20% or more of the business to be acquired must be an applicant and guarantor.  Conversely, any person who has less than 20% ownership will usually not be a co-borrower/guarantor (even if bringing in cash to the transaction).

Net Worth:

The Definition of Net Worth is “THE VALUE OF ALL ASSETS MINUS THE LIABILITIES OF AN INDIVIDUAL”.  A borrower must show on a Personal Financial Statement the funds required for a down payment (Cash Injection) and the funds required for the costs of the Loan (Appraisal, Environmental Report, Legal Research, etc.).

The Lender may also require additional collateral to qualify the Borrower for a loan.  This is why it is vital to show all assets owned on a Personal Financial Statement.

Ownership of other businesses can be an important piece of information. There are times when the assets or positive cash flow from another business will be a “compensating factor” toward the loan approval.

Joel Soforenko is an industry veteran having extensive experience with SBA 7(a), SBA 504 and USDA loans.  He has assisted borrowers as a loan originator, processor, underwriter and Manager of the SBA Department of a major origination platform. Joel is now the CEO of Continental Finance Capital Corp and can be reached at (617) 336-3215 x 5 or joel@continental.finance.