How to Obtain an SBA Loan (PART 1 of 3)

SBA LOAN DEFINITION:          

Borrower:    Who is qualified for an SBA Loan?

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

1.    EXPERIENCE - Requisite experience in the industry he is in or wants to participate in. Standard guidelines for this experience is a minimum of one year as an owner or manager. On a case-by-case basis, a Borrower can transfer experience in a different industry as qualification for this guideline.

2.    CASH - Requisite funds as a down payment and/or “cash injection” for the purchase or project including up-front costs charged by the SBA Lender.

3.    CREDIT - Requisite credit to qualify under the SBA Lender’s guidelines. There are national SBA Lenders who do not have a minimum credit score requirement.  However, a Borrower will have difficulty or not be able to qualify if there are these issues on a credit report:  late payments, charge offs, judgments, tax liens and the like.

4.    INCOME - Requisite of personal income into the Borrower’s household.  The industry standard for a borrower’s income into the household is $30,000 dollars.  An SBA Lender wants to make sure the borrower has enough household income to cover the borrower’s household expenses including food. (exceptions on a case-by-case basis with a letter of explanation)

5.    NET WORTH – (Always on a case-by-case basis) Requisite of the borrower having personal assets, which shows cash available for the down payment and any other additional cash injection.  During underwriting it may be determined that the Borrower needs other assets to be used for additional collateral: stocks, bonds, certificate of deposit, whole life insurance with cash value and the like.  Or in the case where the Borrower owns other businesses, the positive cash flow of these businesses.

 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.

Loan Scenario - Purchase Bar & Grill

Who:

1.            Borrower has dreamed of owning a tavern
2.            Borrower is a bank branch manager
3.            Borrower has experience as a tavern chef
4.            Borrower rents a residence and has $125,000 in a bank account
5.            Borrower has very good credit

What:

1.            Tavern went out of business
2.            Tavern leased its location
3.            All assets of the business are for sale and taking over the lease
4.            Purchase price of assets is $400,000 dollars with an additional cost of $70,000                dollars for all other parts of the transaction.  Total $470,000.

Where: Dallas, TX

When:   Needs 60 day closing

How:    

1.            Borrower needs loan to include purchase of assets, purchase of liquor license and                renovation of the interior of the premises
2.            Borrower has negotiated the purchase price of the Seller’s assets
3.            Borrower will work with municipality to obtain the liquor license
4.            Borrower needs to research the cost of renovation

Decision:  Not Eligible for SBA Loan

Why:

1.            Borrower does not have required experience as a manager or owner in the                industry.
2.            Borrower does not have transferable skills any other transferable skills to                own a tavern
Eligibility Cure:

1.            Borrower can find a partner with the requisite experience.
2.            Partner will need to have a minimum of 5% ownership of the new company
3.            However, SBA Lender, Countrywide Standards is this Partner will have to fully                guarantee the loan. 

Call or email Joel Soforenko and go over your Loan Scenario
888-268-7778 x 2 or joel@southendcapital.com

SBA Q & A : Borrower with No Experience

Background of Question:

If the primary borrower doesn’t have enough experience in the business he wants to purchase, and has to bring in a partner who will have at least a five percent (5%) ownership interest (minimum allowed for a partner with the experience to meet this requirement.

Question:

Does the five percent (5%) owner need to sign as a 100% guarantor (where the primary borrower does not have sufficient experience?

Answer:

Yes, the lender will require the person who has direct industry experience to be  one hundred percent (100%)  guarantor of the loan