







|
 |

Small Business Loans

Including Traditional Lending Requirements,
SBA, Commercial Real Estate Lending, and
Private Money Financing
Remember your
Lender is in business to make money.
Consequently, when a Lender or Bank lends
money it wants to ensure that it will be
paid back. A bank may also represent the
Small Business Administration (SBA). SBA
financing usually is guaranteed to the bank
and provided to the bank and then lent to
the borrower. The SBA does NOT lend direct
to the borrower therefore, the bank must
consider it’s own lending criteria which
will also include the 5 C's of Credit each
time it makes a loan.
The 5 C's of Credit – Traditional Lending
Criteria
Capacity to repay is the most
critical of the five factors. The
prospective lender will want to know exactly
how you intend to repay the loan. The lender
will consider the cash flow from the
business, the timing of the repayment, and
the probability of successful repayment of
the loan. Payment history on existing credit
relationships - personal and commercial - is
considered an indicator of future payment
performance. Prospective lenders also will
want to know about your contingent sources
of repayment.
Capital is the money you personally
have invested in the business and is an
indication of how much you will lose should
the business fail. Prospective lenders and
investors will expect you to contribute your
own assets and to undertake personal
financial risk to establish the business
before asking them to commit any funding. If
you have a significant personal investment
in the business you are more likely to do
everything in your power to make the
business successful.
Collateral or guarantees are
additional forms of security you can provide
the lender. If the business cannot repay its
loan, the bank wants to know there is a
second source of repayment. Assets such as
equipment, buildings, accounts receivable,
and in some cases, inventory, are considered
possible sources of repayment if they are
sold by the bank for cash. Both business and
personal assets can be sources of collateral
for a loan. A guarantee, on the other hand,
is just that—someone else signs a guarantee
document promising to repay the loan if you
can't. Some lenders may require such a
guarantee in addition to collateral as
security for a loan.
Conditions focus on the intended
purpose of the loan. Will the money be used
for working capital, additional equipment,
or inventory? The lender will also consider
the local economic climate and conditions
both within your industry and in other
industries that could affect your business.
Character is the personal impression
you make on the potential lender or
investor. The lender decides subjectively
whether or not you are sufficiently
trustworthy to repay the loan or generate a
return on funds invested in your company.
Your educational background and experience
in business and in your industry will be
reviewed. The quality of your references and
the background and experience of your
employees will also be considered.
See the following Websites to check your
credit history:
Small
Business Loans Guaranteed by the Federal
Government
About the United States Small Business
Administration (SBA)
The SBA, established in 1953, provides
financial, technical and management
assistance to help Americans start, run, and
grow their businesses. With a portfolio of
direct and guaranteed business loans and
disaster loans worth more than $59 billion,
SBA is the nation's largest single financial
backer of small businesses. Last year, SBA
and its resource partners offered management
and technical assistance to more than 2.6
million clients. SBA also plays a major role
in the government's disaster relief efforts
by making low-interest recovery loans to
both homeowners and businesses. America’s 25
million small businesses employ more than 50
percent of the private workforce, generate
more than half the nation's gross domestic
product, and are the principal source of new
jobs in the U.S. economy. Under the new 2009
Stimulus Plan all SBA fees have been waved
to the borrower and the guarantee to the
lending bank has been raised from 75% to
90%.
See
www.sba.gov for complete information
especially
- SBA's
Preparing and Presenting a Loan Proposal
- SBA's
Loan Package Checklist
Basic
SBA 7(a) Loan Program
7(a) loans are the most basic and most used
type loan of SBA's business loan programs.
Its name comes from section 7(a) of the
Small Business Act, which authorizes the
Agency to provide business loans to American
small businesses.
All 7(a) loans are provided by lenders who
are called participants because they
participate with SBA in the 7(a) program.
Not all lenders choose to participate, but
most American banks do. There are also some
non-bank lenders who participate with SBA in
the 7(a) program which expands the
availability of lenders making loans under
SBA guidelines.
7(a) loans are only available on a guaranty
basis. This means they are provided by
lenders who choose to structure their own
loans by SBA's requirements and who apply
and receive a guaranty from SBA on a portion
of this loan. The SBA does not fully
guaranty 7(a) loans. The lender and SBA
share the risk that a borrower will not be
able to repay the loan in full. The guaranty
is a guaranty against payment default. It
does not cover imprudent decisions by the
lender or misrepresentation by the borrower.
Under the guaranty concept, commercial
lenders make and administer the loans.
SBA 504 Program
SBA 540 real estate financing guaranteed by
the government to “preferred” banks.
Oftentimes this is referred to “Brick and
Mortar” financing for long-term, fixed rate
financing to:
-
Purchase land and construct new
buildings
-
Purchase and renovate existing buildings
-
Acquire & Install machinery
- Expand
existing facilities
- Terms:
50%/40%/10% (special purpose property
50%/35%/15%)
For
assistance in filling out a SBA loan
application call Denise Beeson, (707)
544-5696.
Requirements for Buying or Refinancing
Commercial Real Estate
-
Identify Real Estate
- Make
Offer
-
Arrange Financing:-Appraisal
(@$4000)-Application (@$2000)
-
Documents Requested (Lenders vary, but
be prepared to supply)
- 2-3
years Tax Return of business
-
Current/interim Business Financial
Statement, (FS)
-
Owner(s)/Guarantors: last 2- 3 years Tax
Return; 2-3 years Financial Statements
(Personal Financial Statements; Resume
of the owner(s), especially noting years
in industry (2)
- Legal
Entity i.e. Articles of Incorporation,
LLC etc.
-
History of the business & Current
description of the Business (ideally a
Business Plan)
-
List/Description of all personnel,
particularly the Licensed personnel,
including number of years employed by
this business and number of total years
of professional experience.
- Copies
of Licenses i.e. Liquor (if applicable)
- Copies
of the last 3 years State/County Health
and other departments inspections. Note:
infractions, deficiencies, violations
during the last 3 years (if applicable)
- Copy
of all insurance coverage: General
Liability, Malpractice, E&O (Insurance
copy if applicable)
Private
Money Lenders
A “hard money” lender is typically a private
lender that will lend money to more high
risk borrowers or borrowers that do not
“fit” into standard underwriting criteria;
and, they in turn charge a higher interest
rate. They also provide short term loans
which are also referred to as bridge loans.
The interest rates on these loans are
typically between 9% and 13% for real estate
hard money loans, which may be higher than
the average bank.
Hard Money Criteria
- Up to
$5,000,000 per transaction
on the same project
- Up to
66% LTV improved structures, up to 40%
LTV raw land
- Commercial property purchases
or refinancing
- Ask
about brokered construction loans
- Bank
workouts, bankruptcies and foreclosures
are common
- Loans
on commercial buildings, vacant land
Loan
Application Requirements for Private Money
Loans
- Loan
Application or current financial
statement (less than 6 months old)
- Signed
Tax Returns for 2 most recent years.
(Corporate and Individual, if
applicable.)
-
Borrower's credit report.
- YTD
Operating Statement for subject Property
- Rent
rolls and copies of all rental/lease
agreements.
-
Appraisal or Documentation of Estimated
Value
-
Written "Use of Proceeds" letter
- Color
pictures of subject property
Call Denise
Beeson (707) 544-5696 or (707) 694-6826 to
apply for a Private Money loan.
|