Frequently Asked Questions
- Standard SBA Regulations do not put restrictions on time out of bankruptcy.
- Any “time out of bankruptcy” restrictions are lender underwriting additions
- You will find that lenders (banks) who use their own funds to lend are more restrictive then lenders (banks) who sell on the secondary market.
- In essence, an SBA Lender who has a national scope will be more flexible with underwriting criteria then the local or state banks. (ie. time out of bankruptcy)
- As an SBA Mortgage Broker, I work with this type of situation on a regular basis and close SBA Loan with this factor regularly.
I just graduated college with no debt/no substantial savings. I would like to buy a proven income equestrian property. How would I get a large loan?
Joel Soforenko, CEO at Continental Finance Capital (2017-present)
Answered Mar 14, 2017
Short Answer – Find a Partner who has the required cash and credit. This can be a relative or “arms length” third party.
Also, you or the partner would need at least one year of experience as a manager or owner of the kind of equestrian facility you want to open.
Most business coaches and business gurus would look at you and say your “only” thirty years old and you should keep with your game plan. The comforts and fruits of your labor will come with the growth of your business.
However, I’m thinking if you are asking the world this question, you are not only asking the outside world but also the world within.
Why the confusion? What is going on that you are having these questions come up? What has changed or is changing that you are considering the alteration of your business plan?
There is also the middle course. Find a house which will have reasonable appreciation (for all the usual possible reasons), live in it for how ever long, and when your ready, sell it and use the profits to continue on your journey.
Some additional education and incite into the financing of your company and how this financing affects your business. I suggest you create a group of people for this purpose:
1) Find a mentor(s) and/or call SCORE. You can also call your local SBA Regional Office which has resources and guidance.
2) Use the bank where you have your accounts and/or loans as a major resource for these type of questions.
3) Use your accountant as a major resource on a regular basis.
The above are my initial thoughts. To answer this question directly and comment on the above answers, here is additional information:
1. Yes, you can have an SBA Loan and a Separate Line of Credit.
a) The SBA Loan will have a first lien position on your business assets and/or real estate.
b) Because most banks and SBA Lenders will want to have a first position on any collateral you have for their security, it will be difficult to find a lender who will provide you with a line of credit. You should first talk to your current bank.
c) Your dilemma is one of the reason that the cash flow based lending industry has mushroomed. On Deck, Funding Circle and the hundreds of other Lenders of this type will lend money without needing a first position lien on your collateral.
The downside of this type of financing is the cost. Beware of the expense to your bottom line and make sure you will be able to sustain the payments (or refinance them in the future)
2. SBA Loans can be used to refinance existing debt (This is an unequivocal fact). Standard SBA Loans are offered under $350,000 and can be used to refinance debt. Fundera usually offers another type of SBA Loan known as “SBA Express Loans.”
3. The SBA does offer Lenders the ability to fund Lines of Credit. However, there are not many SBA Lenders who offer “CapLines”.
4. You can refinance SBA Loans into bigger SBA Loans, or if need be you can “stack” SBA Loans. Even though this may be a “Lump Sum” loan and all the proceeds given to you at closing, this type of loan will have better terms then the “Cash Flow Loans”
5. It is h points out that some loans have provisions which prohibit Borrowers from obtaining second loans which will encumber assets unless the Borrower receives permission from the first position lien Lender.
a) SBA Loans will not have this provision
b) This is certainly an important factor in deciding if a Borrower should accept a loan offer from a Lender
6. As to restructuring debt and paying off an SBA Loan, I would not go so far as to say “it is often better to restructure all your debt and pay off the SBA Loan”. Every business/financial situation is different and you should take the time to analyze your situation before accepting any generalization. SBA Loans are available for particular business and financial reasons which often make them better options.
An Online Business is no different from any other business which offers a service and has little or no “hard assets”. Its about longevity and net cash flow (along with additional collateral from the Buyer).
The business needs to be active for more then eighteen (18) months and show net income which will support the loan amount for the purchase. Usually the underwriting requirement is the net income must show 20 – 40% more then the actual principal and interest to be paid (this is called the DSCR – Debt Service Cover Ratio).
Note: Some SBA Lenders want a business to be active for two to three years before it is considered stable.
If the business net income cannot support the loan amount needed, then a buyer can still purchase the business – but it will be considered “still” in the start up stage.
The difference is: A “mature” business will require 15% down payment and a start up will require a 20% down payment. (The Seller can take back a note for some of this down payment in lieu of receiving cash from the Buyer – Lenders usually want the Buyer to have 10% cash into a transaction as described).
PLUS – most SBA Lenders will require 25% to 50% of the loan be secured with other assets of the Buyer. Especially where the business itself only has value based on the cash flow or “intellectual property” and not intrinsic (hard) assets.
You will need to work with a seasoned SBA Professional to sought out the many details of a transaction like this one and put together a sound submission for an SBA Lender.
The SBA does not fund limited types of loans in the manner which you pose your question.
The SBA has certain ineligible industries it will not allow to have an “SBA Guarantee”. No “SBA Guarantee”, no SBA Loan from a Lender.
Otherwise, there is no “limited” or “limiting” types of loans with SBA Lenders and Lending.
There are two types of criteria used by a lender when your loan is reviewed: SBA Regulations and Lender Underwriting Criteria. The Lender underwriting criteria is additional qualifications the lender uses in its underwriting to decide if you are eligible for a loan. The lending industry calls these additional underwriting criteria “overlays” as they are above and in addition to the SBA Regulations.
There are no specific underwriting limitations to funding a manufacturing company. And, the SBA Regulations are liberal in how financing can be used.
In my view a manufacturing company has the same manner of producing income as any other business and can be used as a metaphor for most types of businesses:
Cost of Goods
Sale of Goods
If you are a business with a twelve (12) to eighteen (18) month history of income and net profit, the business should be eligible for SBA Funding. If you are a start-up, you still can be eligible for funding – you will need to know how to present your loan request (submission) to a lender.
Remember, the SBA Regulations are not the limiting factors, its the bank or lender where you are submitting the loan who have the additional overlay of underwriting criteria. Local and In-State Banks usually are more conservative with their overlays then Regional and National banks and lenders.
You will need to contact several banks and/or lenders to gauge the way they look at your situation and the underwriting criteria which will be used to decide if you qualify for a loan.
A loan will allow you to expand your business faster then having your business “bootstrap” the expansion (finance the infrastructure required to increase marketing, production and sales).
To come to the best solution for you, you will have to get out your paper, pencil and calculator and do the “cost accounting”. What is the cost to your business in equipment, inventory, overtime for employees or new employees, marketing, etc.
Now figure the gross income and net income from the increased sales.
Now figure out how much of a loan you will need to “gear up” your business.
Now do the research to find out the best loan for this expansion and what the loan will cost you per month in payments.
Now subtract net income from the loan payments. If there is a profit, then the other question (which is the eight hundred pound guerrilla in the room) what is the timing for you to pull this trigger (obtaining the loan for the expansion).
This is the way to go about coming to a decision on a loan vs. bootstrapping.
And, remember, you should be keeping your expenses lien (as well as your income) so you have the choice to do some of the expansion by bootstrapping and some with a loan.
My personal opinion is to build cash reserves so you can self fund (bootstrap) until you are able to project or are experiencing a future of sustained growth, then go the loan route.
A general question with a hint of trepidation about Detroit.
Let’s see this from your outside looking inward: why do you need a loan and will the geographic area of Detroit affect this reason.
Often as you look at the pros and cons of beginning a business, you think to yourself that you need a certain amount of dollars for a “budget” and to make money.
When you are thinking about your small business, think about “bootstrapping” before you put too much effort into thinking you need money to make money.
“Bootstrapping” can be the use of your profits to buy equipment or other items needed for your business. Or, it can be the use of your “sweat equity” to build your business and start making a profit. “Sweat equity” is the process of using your time and talents to make money.
Creating a business and growing a business is usually a “slow but sure” process. Of the millions of people who do this, we see and hear the “get rich quicker” infomercials on Facebook and other Social Media. The but is, most businesses are successful after long term effort. As Tony Robbins would put it “massive effort”.
Certainly there is a place and time where a loan will help you to get to a higher level of efficiency, better marketing, and higher sales. However, the first step is to create a strong and lasting base of support for what you are doing.
Take the time to learn everything you can about the business you have chosen, marketing, production, service and sales before you start looking for your first loan.
Now, all the above being said, if you are in the process of doing business and learning more every day about your business, then come back and give us some facts about your business and we will help you to sought out the question of your first business loan.
PS. In your business life and your personal life, Detroit is a state of mind not a city in the United States.
You are asking unrelated questions.
You can apply for and receive an NMLS number no matter what is going on with your credit.
See other answers for the need for financial responsibility to obtain a state license.
HOWEVER, if you want to be a mortgage loan officer and cannot obtain a license there is an exception to the state license rule: Federal Chartered Banks and Federal Chartered Credit Unions can create Net Branches. The loan officers at these net branches do not need a state license to be employed as a loan officer.
The fact that the bank or credit union (and therefore the net branch) comes under the Office of the Comptroller of the Currency regulations takes them out of state regulation and oversight.
a) That being said, you would need a very good explanation for your credit issues to be hired by one of these organizations.