With access to capital so tight now, many small business owners wonder what they can do to best position themselves for a “yes” when they approach a lender for an SBA loan. Here’s what the lender will look for in the initial consideration:
• Collateral – the real estate purchased is the primary collateral so it needs to be in good condition. It needs to make sense for the needs of the business. For working capital loans, banks are going to want to consider either business-based or personal assets as security on a loan.
• Credit worthiness – while the last few years in the economy have been tough, borrowers that demonstrate on their balance sheet that they can manage expenses despite decreasing revenues are in a good position. Lenders need to see positive cash flow. If your cash flow is tight, provide reasonable and well-justified projections to get the lender comfortable with the transaction. Personal credit scores and D&B data will be reviewed.
• Diversification of revenue streams – banks like to see a “Plan B,” ready to execute. If you have multiple products or customers from a spectrum of industries, that bodes well for your loan application.
• Minimal new debt – ask for what you need and not more; fiscal responsibility is once again in vogue. For example, if you’re in a 5,000-square-foot office and want to purchase 50,000 square feet, your interim financials and projections need to justify why. It’s more likely your bank will be comfortable financing a building that is 100 to 120 percent of the size of your current facility.
Understanding SBA loans can open up new opportunities – and capital – for small business owners, creating bridges to expansion, growth and new job creation for you and your community. Many banks have SBA experts on staff that can explain the application process, help structure a loan and answer questions about the process. CDCs are experts on SBA-504 loans and can guide you through a process that could be one of the best investments you ever make.
– Kurt Chilcott, President/CEO of CDC Small Business Finance