Most people are used to walking into a bank, showing tax returns, banks statements, and other financial documents to get a loan for a home or maybe even a car. In commercial financing, time is money. Gathering and underwriting tax returns takes times and the buying emotion can turn cold while bankers wait for people to gather financial statements. This is why most commercial equipment lenders like to finance individual pieces of equipment on an "application only" basis. It's what vendors want. It's quicker and people maintain their interest longer. Using an application only to make a credit decision means that the bank must rely heavily on the applicant's individuals personal and commercial credit. No commercial credit? Issues on the personal credit? Sometimes you can still get buy without showing financial statements but sometimes you can't. In these situations, tax returns or bank statements may strengthen weak credit, so don't neglect this idea. Generally application only programs have limits of $150,000 purchases up to $400,000 equipment purchases depending on if you have the commercial credit to support it.
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Who qualifies for an SBA Loan?
This post will discuss the simplest way to qualify for an SBA Loan. SBA loans reduce the risk to lenders by giving them a gov't guarantee. This gives small businesses easier access to capital.
SBA loans are only for owner operated businesses not investors. If you are trying to get a loan for one of your apartment buildings you won't qualify for an SBA loan. If you want to refinance your owner occupied and operated office building you should qualify.
There are some restricted industries that can be found here:
Most industries are eligible. Non profits, some financial services, speculative businesses, and other don't qualify.
Speaking from an underwriting basis, here are some things you would need to get approved:
- Good personal credit (600 min score with limited issues)
- Good cash flow (debt coverage ratio of 1.15 or better)
- 85%+ collateral securing the loan (real estate, equipment, receivables, etc)
- 3yrs of business tax returns (preferred but not required)
- 10% minimum cash contribution to the loan (not required on refinances)
- $5MM or less on SBA 7(a) or $10MM or less on SBA 504 real estate
SBA loan underwriters can get creative in these areas to help loans get approved so it's always good to check with your bank. One thing to consider is all SBA lenders are not created equal. Many local banks underwrite a limited number of these loans each year and are inexperienced. It's good to find an experienced SBA lender that has the authority to approve these loans in house (local banks don't have this) to speed up the process.
This article is not all inclusive, it's best to consult with a banker to see if an SBA loan can help you.
SBA (Small Business Administration) loans are for those looking to start, grow, and keep their business going. They help us live the american dream of managing a successful business. SBA loans are government guaranteed loans for business owners. Meaning that a bank loans you money and if you meet the SBA's criteria, they will back your loan up to 85% if you default. This is great news for the lender and encourages them to want to make a loan for you. Funds can be used for working capital, real estate, or equipment; purchase or refinance. SBA loans are great for all businesses offering long terms and great rates with flexibility toward the collateral backing the loan. Where is the downside? Generally, they come at a price; effort. SBA loans take quite a bit of time (2-3months) and lots of paperwork. They are generally worth it if you can survive to process. There is more generosity when it comes qualifying so many business owners don't have another choice. Not all SBA lenders are created equal either. Just because one bank won't make the loan for you under the SBA program, doesn't mean another won't. Check with us to see if you qualify. I will also make another post soon on the general qualifications of an SBA loan to see if you meet them.