Business Financing

[IDHunt'em]

I know there was a thread on here about SBA loans but I can't find it.
Anyways, there is an opportunity for myself and the others in my office to break off of the main company and go into business for ourselves. We have not been doing well lately but have some ideas of how we could become more profitable by cutting some expenses and moving into a new market. The deal is that we would take all the equiptment, software licenses, leases, etc. and just become another company. The only money we would need to come up with is enough to cash flow the business 200-300k. If we did it we would have to come up with the money fast - like by the end of next month. My question is to all you with WAY more experience in business financing. I know there are SBA loans, business lines of credits at normal banks, etc. What is the time frame for a typical SBA loan? Would that be the best way to go in this situation? I've looked at lines of credit on a few bank websites but I'm not sure how they will take our inability to be profitable over the last six months or so. As you can probably guess, there is a lot that has to be hashed out - just looking for some information.

 

[Delw]

if your white the typical time its about 6-8 months, if your black or mexican it is shorter by 2-3 months. White women are not a minority anymore.

Also be very careful with SBA loans cause from what I read, you screw up for what ever reason you done for life unlike a bank loan
we looked into it and even looked into it recently we decied it wasnt worth it.

you will need a solid and I mean solid business plan, if your in an area that doesnt have many jobs thats a positive, if you hire people thats a positive on SBA loans.
I know guys that got them in poordunk states with a crappy business plan but they hired people. and I know guys that had a brainstorm that would make tons of money except they lived in a city and didnt get them.
its far easier and far faster to get a bank loan or through a finance company,Typically 3-8 days and they are loaning money now.

 

[ringer]

If you can buy a building it will be much easier to get an SBA loan. That seems to be the key factor since they like the collateral. I would find a foreclosed or owner in trouble and work a deal including the amount you need to start up. I have paid $700000 in rent in the last 7 years for this 26 year old space so if you guys buy right up front it will pay you a great return. Del, who is lending? I am ready to apply with my bank and not hearing things are very loose. We are still slow but down to the last $22000 on our $550000 loan on the business and the payment is $6000 a month so I need to refinance the last bit plus recover some working capital. I cut $13000 a month in expenses in the last 6 months so hope we can survive this mess and live a bit more frugal.

 

[Big Fin]

IDH:

The SBA has two programs, Section 7(A) and Section 504. You will be applying for 7(A), as you don't have any real estate involved. 504 is for real estate that is owner-occupied.

The time frame depends upon a few things. First is your bank. Second is how busy your state SBA office is.

Section 7(A) is an SBA guarantee that the SBA gives to your bank, in the event you default. That reduces the bank risk, and makes is much easier for the bank's credit/lending committee to approve your application.

The bank will loan you on equipment, inventory, and some other hard costs that can be collateralized. They will usually loan 70% of value on those type of assets, if you can obtain the SBA guarantee. Other costs, such as operating capital, funding of accounts receivable, deposits on rented space, etc. usually have to come out of your pocket.

I would suggest you meet with a good COMMERCIAL banker, ASAP. They will ask you to break out your costs by type - those that can be collateralized and those that cannot. They will also give you a better feel of the time frame for the bank and the SBA. A good commercial banker will know all of these time frames in your area, as he/she should be doing a couple of these a week.

The banks will want you to have a CPA do a bunch of projections and put their opinion on those projected statements. Tell the bank to pound sand. Do them yourself and save the $3,000 cost for the CPA to do them. The bank is just looking for another person to go to in the event of a default.

I emphasize to work with a commercial banker. They understand business financing. Consumer bankers don't understand business funding, nor do real estate bankers. Make the banker work for their money. They will be charging you origination fees, so make them earn it. Have them help with as much as they can. They will snivel, but if they want your business, they will help as much as possible.

Good luck.

 

[brymoore]

A typical SBA loan will take 2 to 6 weeks, depending on the complexity of the loan. The SBA is waiving it's fee currently which should save you a few grand.

 

[IDHunters]

Like Big Fin said go find a GOOD COMMERCIAL banker. Don't go to a credit union or talk to the person that does the car loans.

There probably hasn't been a worse time to finance a project of which you speak. Banks are not actively pursuing deals right now. Your equipment will be valued at wholesale then you may get 60-70% of that in collateral value. Leases, software, licenses are, for lending purposes,nearly worthless.

Your request is to cash flow the business, which you have indicated is operating at a loss. That is a huge issue. The loan will be looked at as a complete start up, all based on projections. Thats a tough loan.

SBA guarantees in effect, "guarantee" a loss for the bank. In other words, if the bank loss on your loan is 100,000 and it is guaranteed at 70%, the bank loses $30,000. Typically, the SBA guarantee will be used in a situation where the collateral is not quite up to guidelines.

Your request for a working capital loan, based on the small amount of info you have shared, would be nearly 100% unsecured. Its a big dollar amount, little collateral, start up and based on a business that you said is losing money. I think you have a tough deal.

A more reasonable time frame for this type of loan is 5-8 weeks, minimum.

A better plan would be for all the partners to come up with a portion of the funds from personal sources, then after the business has been running and has generated receivables and some cash flow, then apply for the business loan.

 

[IDHunt'em]

Thanks for the info all. Good information - confirms my skeptisim a bit. I'm fairly confident we could make it work but we're going to have to do some work to pencil it out. Thanks again!

 

[JoseCuervo]

Best lender in these types of things is the "Three F's" lending company. Friends, Family, and Fools......

Does your $200-300k in "cash flow" include wages to yourselves?

 

[3bigelk]

If you are in Idaho/Utah the most agressive bank for this type of loan is Zions First National Bank. They are the #1 lender in the area. Start developing a relationship with one of the commercial lenders that you feel comfortable with. I just finished and SBA and it took about 6 weeks. Even though it is for a new company they secured it with collateral from my exsisting company. A good lender will know his way through and around all the potential hang-ups. Good Luck!

 

[Delw]

Heres another good tidbit,
NEVER I repeat NEVER be honest with the bank on how much cash you have avail, they will try to take then as your downpayment and then some.

it pissed me the f off, I was honest about what I had, they wanted it ALL then added doc fees.

I got the loan no problem but now were are negotiting the down payment... Those f=ers

 

[DRAFTSTUD]

Just remember, as great as an oportunity as it is don't forget when to walk away and wait for the "Right time and place". It will do you no good to get just enough to get the business, but not enough to be successful. John

 

[Delw]

John,
thats really good advice, theres a bunch of times I wish I had done that, especially when I was younger. and just starting out in manufacturing.