7 Critical Mistakes Business Owners Make with their SBA Loan Application

Transcription

1 BY JARRET PRUSSIN

2 7 Critical Mistakes Business Owners Make with their SBA Loan Application Funding for a growing enterprise at the right time, often means the difference between success and death or stagnation, for your business. Therefore, as you try to continue the growth of your company, you probably should be looking into U.S. Small Business Administration (SBA) loans as one long term option in funding your business. As an intelligent, logical business owner, you should know that SBA offers the best type of loan available, with lower interest rates and longer terms. So when you review or think about the SBA application process, handle it yourself. Unfortunately, this isn t usually the case. SBA loan applications require a detailed accounting of your business. The paperwork is long, thorough, and hard to complete. There are many rules and regulations that you need to be aware of. Because of this, business owners who complete their loan applications alone typically make many mistakes. Below, we ve outlined the seven most common mistakes business owners make during the SBA loan application process and how you can avoid them. 1

3 1 Applicants Underestimate Relevance of Tax Returns. You may not be aware that the driving document for a SBA loan is your Tax returns. The lending Bank will look at the last three years. They will focus on the taxable income line. It is critical that your returns are accurate, for this is the document that will determine the amount you qualify for. We are all honest on our returns, but not anxious to pay taxes. However, in a SBA process a clean, accurate return greatly speeds the process. A rough rule of thumb, is that every $18,000 of Taxable income will qualify you for a 10 year, $100,000 general working capital loan. 2

4 2 Applicants Don t Know They Can Add Back Non-cash And One-time Non-recurring Expense. Like most astute small business owners, you know what you take in and, more or less, what your business has to spend to remain operational. During the loan application process, you record this critical information on your income report. However, you may not realize that you can put non-cash and non-recurring one time expenses on your income statement and loan application. Examples of non-cash and one-time non-recurring expenses include depreciation, charitable donations, one time legal expenses, one time office build outs etc. These add backs might be essential to completing your SBA loan application and helping you qualify for a loan. We recommend writing a list of non-cash and non-recurring expenses before you fill out your loan application. Your loan specialist can determine which of these expenses and one-time non-recurring expenses should be included in your application. 3

5 3 Applicants Only Seek Loans From Big Banks and Other Traditional Lenders. It can be difficult to get a small business loan through large traditional lenders. The loan requirements the SBA sets forth for these lenders, and the businesses they lend to, are stringent. The required paperwork is significant, and the loan approval timeline is long. Then, even after a traditional lender approves your loan application, the amount it can lend and the borrowing conditions are limited. Many large Banks will do SBA loans but do not see it as part of their core mission. The local Branch people that you deal with often do not handle SBA loans and have to send these loans to departments that you will not meet or talk to. SBA Loans are usually not a core product offered by your traditional large banks and therefore large big banks don t provide the best options for SBA Loans. Due to these suboptimal lending conditions, business owners should consider working with smaller banks who focus on SBA lending as part of their core mission. These smaller banks can process loan applications more quickly and efficiently and many provide attractive loans with reasonable interest rates and terms. The conditions for loan approval vary according to each lender. If you ve limited your SBA loan search to big banks, you have reduced your ability to obtain funding quickly and easily. Smaller Banks provide great opportunities to get small business loans. 4

6 4.1 Applicants Don t Have Their Businesses' Financial Numbers And Use Of Proceeds List Ready. You need to prepare a significant amount of documentation to apply for a small business loan. For example, you must provide information about your personal background, including details about your education, current and former household addresses, and job history. You also need to submit a stack of legal documents, such as articles of incorporation, third-party contracts, commercial leases, franchise agreements, and business licenses. Most lenders want to see that you have a strong background in the business you re running and a stable enough life to continue to manage that business. To meet their expectations, you have to highlight managerial skills in your CV or resume. Your creditworthiness and your business s financial outlook play a major role in determining whether you re a candidate for an SBA loan. Lenders want to see proof of both through your credit reports, comprehensive financial statements, income tax returns, and bank statements. These numbers are often where small business owners make costly mistakes. Either they don t include all of their businesses financial records, or they accidentally report inaccurate financial information. 5

7 4.2 Applicants Don t Have Their Businesses' Financial Numbers And Use Of Proceeds List Ready. Worse, they often forget to include their use of proceeds list, the proposed amount they d like to borrow from the lender, and their explanation for borrowing in the first place. Your plan for the loan proceeds should be thorough. For example, it should outline the equipment you d like to purchase or the new location you d like to open. It also should include information about any suppliers you buy from and other credit sources you ve borrowed from and repaid. A loan specialist from your lending company, whether it s a big bank or a nontraditional credit source, will ask you in-depth questions about how much you d like to borrow and why. You ll need to explain how you plan to allocate the loan, present your business plan, and describe in great detail how the loan would improve your business s operations. 6

8 5 Applicants Don t Have Life Insurance. We rarely like to consider worst-case scenarios. Therefore, it s unlikely that most small business owners consider their companies' worst case scenarios: their deaths. In the event that you die unexpectedly, family members will inherit your business. A plethora of potentially insurmountable challenges could result. For example, your family may not be able to run your company well. An economic downturn could make selling your company impossible. Or your business could have so much debt that it s impossible for your family to pay it off. Because of such issues, the U.S. Small Business Administration often requires all small business owners applying for loans to have life insurance coverage. Without it, your loan would not get repaid, and your family, business partners, and employees could lose the business. Life insurance would pay off your business s debts, pay for your business partners to buy out your family, and cover your family s living expenses after you die. Key-person insurance, an additional form of coverage, protects your business in the event that a business-critical employee dies. Before you apply for a small business loan, make sure that you at least have a basic life insurance policy for yourself but consider getting additional forms of life insurance coverage that would protect your business. 7

9 6 Applicants Underestimate How Substantial Their Closing Costs Will Be. Small business owners often don t know how big the closing cost will be on a small business loan. That s because closing costs are rolled into the overall cost of the loan. It s also because SBA loans give small business owners attractive loan terms and low interest rates. Business owners are, therefore, generally willing to overlook a substantial closing cost if the rest of their loan conditions are acceptable. It s important to protect your financial future by going into a small business loan with your eyes open. Take a long, hard look at fees that are included in your loan. The conditions you re being offered may be great, but you may be about to sign up for more repayment than you anticipated. 8

10 7 Applicants Don t Return Bank-related Correspondence In A Timely Fashion. It s not unheard of for business owners to become so overwhelmed that they don t open their mail, respond to , return voic s, or answer phone calls. Unfortunately, procrastination doesn t bode well. Credit lenders may perceive your lack of communication as a lack of interest. Delayed communication can also delay the loan process and disrupt your ability to get funding on time. Most lenders have a predetermined schedule for the loan application and approval process. If you don t respond to their inquiries, you probably won t be approved for a loan. Moreover, if you miss one of their deadlines, you may have to reapply all over again. Don t make any of these common loan application mistakes. Let the experts at SBA Funding handle your paperwork for you. Our team will help you prepare your application, prepare all the necessary financial documents, pre-underwrite the loan for eligibility, place the loan at a bank and stay with you until loan closing. Our modest fee, which is set by SBA rules, is only paid if a loan closes. 9

11 Jarret Prussin SBA Loan Group s Chief Executive Officer and one of its Founding Partners. He manages day-to-day operations, employees, and technology implementation. Jarret also works diligently to open new sales channels and generate leads to grow SBA Loan Group s business opportunities. Jarret developed his entrepreneurial prowess during his childhood in New Jersey and Boca Raton, FL. He and one of his quadruplet brothers started their first business at age 16, building a multi-million dollar food diverting company that focused on cereal purchasing and distribution. After high school, Jarret studied entrepreneurship at the University of Hartford in Connecticut. There, he furthered his in-depth knowledge of finance and startups. Jarret began a career in finance immediately upon graduation. He created Alpine Funding which became one of the largest plaintiff cash advance brokerage firms in the United States. After that experience, he decided to leverage his knowledge, experience, and skills to start SBA Loan Group. The company specializes in helping business owners obtain the financing they need for sustainable business growth. Since its inception, SBA Loan Group has facilitated lending opportunities for hundreds of business owners in the legal, dental, medical, veterinary, healthcare, and ecommerce and many other industry groups. Under Jarret s leadership, the company offers a streamline loan preparation process and unparalleled financial guidance. Jarret and his team of loan specialists look forward to helping you with your business loan. Let SBA Funding do the heavy-lifting for you. Call us today at (888) to see if you qualify.