Learn what is required to fund your small business for start-up and growth. If you are unsure of how the business loan process works or if you qualify then join us for this webinar. In this webinar you will learn about:
- Lending resources
- SBA loan programs
- Qualifications and requirements
- SBA loan application process
- Do's and don't when financing your business
What is a CDC?
CDCs or Certified Development Companies are private, non-profit entities with a mission to provide business financing to those who aren’t quite strong enough for bank financing. CDCs are certified by the SBA (Small Business Administration) to administer SBA 504 loans, primarily for commercial real estate. There are more than 260 CDCs in the United States.SBA Standard Operating Procedure (SOP) provides the rules, processes, and guidelines an SBA Lender may, must, or should follow. The Credit Box/internal credit policy – determines the lender’s appetite for risk. i.e. minimum FICO scores, collateral requirements, and length of time in business.
Types of Loans
Term Loans- principal and interest payments paid over a term, typically for a specific purpose.Line of Credit – Interest paid on the outstanding balance. Balance can be drawn down and repaid over the life of the Line. Typically renewed annually or over multiple years, based on certain credit conditions.
Merchant Cash Advance – an advance against future credit card payments received from customers, not a loan.
How You Plan to Use the Money Matters
- Business Acquisition/ Change of Ownership
- Equipment
- Refinancing Debt
- Working Capital
- Start-up - Tenant Improvements
The 5 Cs of Credit
Conditions
- What experience do you and the other primary business owner(s) and operator(s) have in your industry?
- If you do not have direct experience, who will you hire? How will your skills/abilities allow you to successfully operate this business?
- How do the current economic conditions affect your industry?
- Lease terms – Does the location matter?
Capacity
Business Income:
- Profit on recent tax returns and interim financials
- Projected income for new businesses or those planning significant expansion
- Other employment
- Other businesses
- Spousal
- Military
Capital
Funds the business owner(s) will put into the business for this project
Sources:
- Savings
- Home equity line of credit
- Partner contributions
- Family and friends (gifted)
Start-up >10- 20% injection required
Business Acquisition > 10% injection required ( amounts vary depending on the lender)
Character
Personal Credit of:
- Anyone with 20% or more ownership in the business
- Spouses of business owners
- Co-signers
Credit Score:
- Payment history
- Percentage of revolving debt available
- Length of credit history
- Types of credit: Revolving & Installment debt
Collateral
Tangible assets can be sold by the lender in the event that the business is not able to repay the loan. SOP requirements are based on the loan amount and use of proceeds
SBA SOP for loans over $350,000 not for RE, must aim to be fully secured.
Common forms of collateral:
- Personal Residence – if the property has equity when valued at 85% of the present market value.
- Business Assets – all inventory and equipment owned by the business
- Personal Assets – personal vehicle, cash
LTV = Loan to Value: loan amount / collateral value
SBSS - SBA Predicative Index Score
The SBSS score is simply a calculation tool the SBA uses to assess the likelihood a borrower will pay back the loan. The score is an indicator of the strength of the request. The SBA sets a minimum score to process the loan PLP and or lender may have an internal minimum requirement.
The score is based on:
- Personal credit history of all owners of 20% or more of the business.
- Debt to credit available is an important factor. Capacity
- Business credit history
- Impacted by time in business – and # of accounts
- Time in business
- Risk level of the industry
SBA 504 Loan (90% Fixed Rate)
With an SBA 504 loan, money can be used to buy a building, finance ground-up construction or building improvements, purchase heavy machinery and equipment, or refinance debt
$125,000-$20 Million
Fixed
- 10 yrs – equipment
- 20-25 yrs real estate
Down Payment – Minimum 10%
SBA 7(a) Loan
7a loan proceeds can be used for short-term or long-term working capital, to purchase an existing business, refinance business debt, or equipment or CRE.
$50,000- $5 million
Rates – variable, Prime + index ( depending on loan size)
- Greater than $350,001 = Prime + (0-3%)
- $250,000 - $350,000= Prime + (0-4.5%)
- $50,000 - $250,000 = Prime + (0-6%)
Terms – depend on the use of proceeds
- 5-7 yrs. working capital
- 10 yrs. business acquisition
- 10-15 for equipment
- 20-25 yrs. real estate
SBA Micro Loans
Offered directly by CDC Small Business Finance and other approved microlenders
- Loan Range: $10,000 - $50,000
- Loans offered for viable businesses that do not meet bank requirements
- Rates: 8.75 % ( currently, based on the cost of funds) -fixed
- Terms: 3-6 years
- Post-loan business counseling is required
Community Advantage Loan Program
Allows non-bank lenders to make SBA 7a loans. Offered directly by CDC Small Business Finance & other approved alternative lenders.
- CDC covers CA, AZ and NV
- Loan Range: $10,000 - $350,000
- Loans are offered for start-ups, existing businesses, expansions, business acquisitions, debt refinance, and CRE.
- Rates: Prime + 4.5% to Prime + 5%
- Terms: 5-10 years
Impact Loans
Focused on serving African-American and Latino small business owners and businesses located in low- and moderate-income areas.
- Throughout California
- Loan Range: $10,000 - $350,000
- Loans are offered for start-ups, existing businesses, expansions, business acquisitions, debt refinance, and CRE.
- Rates: Prime + 4.5% to Prime + 5%
- Terms: 10-year amortization due in 5 years
Determine your eligibility for your area here.
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