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Thursday, August 20, 2015

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Getting an SBA Loan in Today's Lending Environment


Borrowers long for the good old days of 1975 where it seemed banks were giving money away. But have you tried getting a loan during the last ten years? The stars must be in alignment or it can be bank brutal out there!

And, when was the last time you wrote a Business Plan for a lender? Acquiring a business loan in today’s lending environment calls for the experts; experts who have been doing this for a very long time and have surfed the rogue waves of our banking system. The federal government realizes that the framework of America’s recovery is built by Main Street (namely small businesses) and the administration is encouraging the U.S. Small Business Association (SBA) to actively guarantee money for lenders to lend.

Some borrower incentives were even introduced in 2013! Extending into 2015 is a waiver of the SBA guarantee fee for all programs under $150,000. For our Veterans, the SBA guarantee fee is waived on all programs under $350,000. These are excellent incentives for the borrower, saving Veterans nearly $8,000 on a loan of $350,000.

In 2014, the SBA hit another lending record. The SBA announced that the U.S. Small Business Administration guaranteed 52,044 loans totaling $19.9 billion for the 7(a) program during their 2014 fiscal year. This was an increase of 12% in the quantity of loans and 7.4 percent in dollar amount over 2013. Interestingly, the number of loans under $150,000 increased by 23% and approved dollars increased 29% over 2013. The 7(a) program is designed to provide small businesses with the most comprehensive type of financial assistance and is most common for startup franchises.

Lenders have historically been risk adverse but, at the turn of the century, there were lenders who loosened up their purse strings. No more. Over the last five years we’ve experienced lenders who have completely forgotten how to open the vault! However, we figured it out. It’s all about having balance in one’s personal financial composition.

SBA and the lender are critical partners in small business and franchisee financing. It is the lender who lends, not the government. The lender has the final say but guides their process adhering to government underwriting regulations and policies. A lender evaluates each case based on five key criteria (in no particular order): credit score, amount of capital put into the deal, collateral, ability to repay the debt (both personal and the business), and experience.

It’s about the balance of one’s personal financial composition. In their words, it’s about all of the criteria, not just one component. Shift that paradigm of thinking that you are required to have collateral! If you don’t own a home or don’t have equity in your home, that’s okay. There are lenders who won’t look at you unless you own a home with equity but, fortunately, there are plenty of other lenders who will.

In fact, a few months ago I was working with a chief lending officer in Southern California and his words were, “Collateral is overrated!” He considers the “big picture” to be the balance.

A Business Plan written for the eyes of a lender is an unequivocal necessity. The Business Plan is a lender’s first set of eyes on your project; it’s one of the most crucial pieces of information provided to the bank. A Business Plan for an SBA loan must be specific to SBA and lender underwriting guidelines. Every single Business Plan must be written with the thought in mind that the BDO (Banking Development Officer) has never before heard of your business.

Successful SBA insured borrowing is possible. The best way to achieve your goals are to start with a winning strategy. Know what the lenders to whom you are applying are looking for and give it to them before they even ask.

Co-Produced By
Reg Byrd
CEO, Direct Connect Ventures

Reg has over two decades experience in the franchise and corporate finance platforms. He spearheaded oversight of best practice financial policy and was accountable to public accounting firm audits.

tom-leaperThomas D. Leaper
Partner, Armanino

Tom has more than 30 years of public accounting experience. He specializes in meeting the unique needs of franchisors and franchisees in a wide variety of segments, including restaurants, quick service, yogurt, payroll, mini storage and real estate renovation. View Tom's Profile »

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