A person who wants to borrow from an SBA Lender needs to understand these qualifications:
Borrower must have the cash for the transaction in a bank account for three months prior to closing. If the Borrower does not have all the cash, the Borrower can qualify with a gift from another source.
On a case-by-case basis, borrowing the funds from investment property or
another source may qualify the Borrower.
The source can be anyone known to the Borrower. However, the funds for the down payment need to show in bank accounts for a combined total of three months. Example: Two (2) months in the giftor’s bank account and One (1) month in the Borrower’s bank account.
A management company is usually not acceptable to run a business which wants to qualify for an SBA Loan. However, on a case by case basis a management company instead of hands on supervision of the business may be acceptable especially if the Borrower owns other like kind businesses.
A better alternative is to hire a W-2 Employee to manage the business (The Employee must prove competence with a resume).
These options are important where the borrower does not live near the business or owns multiple businesses.
Any person who owns 20% or more of a business or will own 20% or more of the business after acquisition must be an applicant and guarantor. Conversely, any person who has less than 20% ownership will usually not be needed or required to be a co-borrower/guarantor (even if bringing in cash to the transaction).
The Definition of Net Worth is “THE VALUE OF ALL ASSETS MINUS THE LIABILITIES OF AN INDIVIDUAL”. A borrower must show on a Personal Financial Statement the funds required for the down payment (Cash Injection) and the funds required for the costs of the Loan (Appraisal, Environmental Report, Legal Research, etc.).
The Lender may also require additional collateral to qualify the Borrower for a loan. This is why it is vital to show all assets owned on a Personal Financial Statement.
Ownership of other businesses can be an important piece of information. There are times when the assets or positive cash flow from another business will be a “compensating factor” toward the loan approval.
For more information contact:
Continental Finance Capital Corp
(617) 336-3215 x 5