Author: RogerP

You have worked for a business for many years and the owners decide to leave the business or leave the area and you have a chance to buy the business for a song. You need to show the lender or investor what the business is really worth, unless you can pay Cash! If you can pay cash, you don’t need to read the rest of this article.

Valuing a Business is part science and part art. There are more ways to value a business than Carter has Pills! Sorry, Old Analogy, but there are many ways to value a business depending on what kind of business and what are the sales and profits generated by the business. 

There are essentially three Good Avenues to follow to value a business and they are discussed below:

1) The Value of the Business Assets. What does the Business Own? You need to add these Assets      together to arrive at a Final Value of the Business.

What is the Dollar Value of the Real Estate?

What is the Dollar Value of the Equipment?

What is the Dollar Value of the Furniture and Fixtures?

What is the Dollar Value of the Inventory?

What is the Dollar Value of the Intellectual Property (Trademarks and Patents)?

What is the Dollar Value of the Employees?

– and any other Asset the Company Owns that you think has Value.

2) Value of a Stream of Cash. What are the Revenues and Profits worth to you?

Investor Real Estate will usually use the Capitalization Method. This method is a Projected Rate of Return if the Buyer Pays all Cash. The Cap Rate is determined by taking the Net Operating Income of the Property and dividing it by the Cost of the Property which Equals the Rate of Return. The Rate of Return should be equal to the Return other Investors are receiving in the Market Place. This Cap Rate could also be compared to the Rate of Long Term Treasury Notes plus a Risk Factor. Long Term Treasury Notes are usually 10 year Government Notes with no Risk. You need to Add a Risk Factor to the Treasury Notes to Equal a Normal Rate for an Average Investment. You can also get the Cap Rate by Asking a Commercial Real Estate Realtor.

Service, Retail, Manufacturing, or Wholesale Business will use methods other than the Capitalization Rate. You want to Asses the Value of a Steam of Cash either by using Sales or Earnings/Profit numbers. Most Industries have a Multiplier of Sales or Earnings that the Business is worth or that most business of that type could be bought. An Example is the Hair Salon business. An article in Forbes Magazine by Tom Taull on 7-15-09 referred to another article by Tom West, The Business Reference Guide. This article gave a method of valuing a Hair Salon by using a Multiple of Earnings plus Inventory and another method of using a Percentage of Sales plus Inventory to Value a Hair Salon Business.

Usually there are method for using Sales and Earnings Multiples or Percentages to Value many businesses in many different Industries. The trick is to find out this method for that particular industry that business is using in that industry. 

3) Discounted Cash Flow Methods which include Net Present Value (NPV) of an Income Stream and the Internal Rate of Return (IRR) of an Income Stream. The following Definitions and Uses are taken Directly from Wikipedia, the online Encyclopedia.

Net Present Value (NPV) – “NPV is an indicator of how much value an investment or project adds to the firm.” Can be used to state the value to a firm of single or competing projects that have a series of Cash Flows over a period of time.

Internal Rate of Return (IRR) – IRR”is a rate of return used in capital budgeting to measure and compare the profitability of investments”.How to use the IRR, it”must be greater than an established minimum acceptable rate of return or cost of capital.”

Example: the following example was calculated on a HP 12C financial Calculator.

Owners of a Hair Salon were selling the business to a long term employee who was the manager for the last Six (6) years. The purchase price was $50,000 and the borrower had 20% to put down on the purchase and had talked to a bank about financing the remaining 80% or $40,000. The bank was using the SBA 7a program to finance the deal and needed to provide the SBA with a Business Valuation.

The Consultant working for the bank to organize the SBA 7a Package needed to Perform a Business Valuation of the Business. The Consultant used the following three methods to place a Value on the Business:

1) The Value of the Business

     The Furniture and Equipment were worth approximately $32,655

     The Inventory was worth approximately                         $53,457

     Total Value of the Assets of the Business                       $86,112

2) Value of a stream of Cash – What are the Sales and Profits worth to you?

     This formula was taken from the Forbes Article written by Tom Taull on 7-15-2009, and 

     Mr. Taull quoted The formulas of Tom West who wrote, “The Business Reference Guide”.

a) Valued as a Multiple of 2 to 3 Times Pretax Income Plus Inventory – the Hair Salon had a   &nb
sp; Pretax Income of $30,000, and an Inventory of $53,000.

    $30,000 x 2 = $60,000 + $53.000 =  $113,000

    $30,000 x 3 = $90,000 + $53,000 =  $143,000

b) Valued as a 25% to 35%, Percentage of Total Revenue plus Inventory – the Hair Salon     has a Total Revenue of $580,000, and Inventory of $53,000.

    25% x $580,000 = $145,000 + $53,000 = $198,000

    35% x $580,000 = $203,000 + $53,000 = $256,000

Average of these two methods is $177,500

3) The Discounted Cash Flow Analysis Valuing a Project Using the Time Value of Money as a

    Guide. The methods we will use are the Net Present Value (NPV) and the Internal Rate

    of Return (IRR). We will use the Wikipedia definition and use for both of these methods.

a) The Net Present Value (NPV) – the “NPV is an indicator of how much value an investment     or project adds to the firm”.

    NPV = $181,652

b) The Internal Rate of Return (IRR) – the IRR “is a rate of return used in capital budgeting to     measure and compare the profitability of investments”. How it is used, the rate “must be     greater than an established minimum acceptable rate of return or cost of capital.

    IRR = 59.40%

Summary: The value of the Hair Salon is much greater than the $50,000 that the buyer paid for the Business. This is the exact reason that you want to perform a Business Valuation. We valued the Business at $180,000. Using the following methods to guide us:

Value of the Assets =         $  86,112

Value of the Average of Income and Sales Methods =  $177,500

Value of the Net Present Value =  $181,652

Value of IRR = 59.40% this is a very high rate of return and confirms that the price is undervalued.

Please address any questions or comments to roger@rogerschlueter.com or visit my website at www.schlueterfinancial.com for additional contact information and additional financial information. 

      

 

 

 

This is a long Title for a very short list of items needed to apply for a business loan from a bank. Believe me! Your banker does not want to see a one hundred page business plan! What he does want to see are the items or documents he uses to make a business loan decision. This will also help you if you want to or need to apply for a SBA Loan. The SBA is very good putting together the information they and the bank want to see. The SBA Application is a short business plan and most of the items they ask for are the same items the bank asked for when you apply for a business loan at the Bank. I could make this a huge article because of all the factors that depend on different information or outcomes. This is meant to be a short list of items the bank wants to see without most of the detailed Why, What and How of each item and the offshoots that can take you info to a different direction. 

ROGERS LIST OF NECESSARY DOCUMENTS TO APPLY FOR A BUSINESS LOAN

1) HISTORY OF COMPANY OR WHAT THE COMPANY WILL DO

    This is a short paragraph or two telling the banker what business your company is in and how

    you do what you do. Who you sell to and how you will make money in the business.

2) MANAGEMENT OR PERSONAL BACKGROUND

    This is also a short paragraph or two on how you or your management team are qualified to

    manage and operate this business.

3) HOW MUCH MONEY DO YOU NEED AND FOR WHAT PURPOSE

    Again a short paragraph or two on the amount of money you need and what you will so with the

    money.

4) OWNERS PERSONAL FINANCIAL INFORMATION AND CREDIT SCORE

    Narrative of the owners Personal Financial Statement and Credit Score.

5) EXISTING BUSINESS – HISTORY OF COMPANY FINANCIALS

    This can be a spreadsheet of you Profit and Loss Statements and if needed Balance Sheets.

6) PROJECTION OF INCOME – THREE YEARS

    Projection of the next three years Profit and Loss Statement ( Income Statement).

7) CASH FLOW STATEMENT – CAN BE MONTHLY FOR 1ST YEAR OR YEARLY

    Thumb Print Cash Flow that Banker will understand will show income before Interest, Owners

    Salary, and Depreciation. Relate Cash Flow to Debt Service that you will have with loan.

8) COLLATERAL

    The collateral that you will have to support the loan if you cannot pay the loan back. This will be,

    of course, any assets you buy with the loan and any other asset you want to let the banker have

    a lien on. Could be additional equipment, real estate, or inventory.

9) SUMMARY OF YOUR PROPOSAL SHOWING WHY YOU THINK YOU PROPOSAL

    WILL MAKE MONEY AND PAYOFF THE LOAN.

     This should be two to three paragraphs to sell your proposal and wrap things up.

This is a short list and does not go into detail on all aspects of the loan documents or the loan processes. If you follow this guide the bank will be happy and will get back to you sooner.

Please write me with any questions or comments at roger@rogerschlueter.com or go to my website for additional contact info at Posted on September 2, 2012Categories UncategorizedLeave a comment on Loan Information Banks want to See to Approve a Business Loan

Bank Business Lending, most of us think if one bank will want to loan on a particular business, so will the other banks, after all, they all are looking at the same numbers aren’t they? I have presented one borrower with an extensive bank presentation to four banks and believe it or not, I got one approval and three different turndowns – REALLY?

What is even more confounding is that the banks that turned the loan down, turned it down for different reasons. I’m like you, I thought they went to the same schools and took the same banking classes. I thought that if the business proposal was the same I would get the same sort of answers but low and behold, the reasons for turning the business down were different.

Bank One – Small Bank in St. Louis Area wanted to approve with SBA but decided to lend up to 70% on the Equipment. I thought this was very aggressive lending but was the way to go without SBA which was more costly and time consuming.

Bank Two – Very Large Bank but local to St. Louis Area. This Bank turned the loan down do to not enough Collateral. The bank said it would apply to SBA but wanted the borrower to put in 20% as Equity which the borrower/buyer did not have in cash. 

Bank Three – Small Local Bank that would be very close to the borrowers shop. This bank wanted the Seller to Guarantee the loan but the Seller who was the Borrowers father did not want to guarantee the loan because he was already taking back a note for $60,000 to $100,000 of the deal which was 43% and 71% of the loan. 

Bank Four – Large Local Bank with high loan losses from the 2008 – 2010 recession. This bank would only do the loan with SBA Guarantee but with the Seller and Borrower being related, they would have to get an appraisal on the business which they thought would be cost prohibitive.

The loan was probably complicated by the fact that the borrower was a female and even though the Borrower had worked in the business all her life, she had no experience as an owner and manager of the facility. The Borrower had good credit and owned a home but the home had little equity over the last three years. The borrower also owned her car with one or two payments left but the cars value was probably approximately $10,000 or less. 

You may think, OMG, but this is really an exercise in why when looking at a Business Loan – the borrower needs to have at least four to six banks look at the Borrowers Loan Proposal. The days of having your local bank look at the deal is over. The other reason is that a bank may take from one month to three months to approve or decline a loan. If you take the banks one at a time you may be looking for a loan for up to a year or more. 

Summary: Banks are allowed to be very subjective in Business Lending. This is very different from Residential Lending where most, if not all, of the subjectivity is Prohibited by Law. Banks can be subjective in many aspects of your business loan like, Equity, Collateral, Guarantees, and Whether or not, they will work with the Small Business Administration.

Please call or Email me with any questions or comments. Contact info and other information is located on my webpage at www.schlueterfinancial.com or Email me directly at roger@rogerschlueter.com      

 

The SBA CAPline Program is part of the SBA 7(a) Loans Program and many of the rules are exactly as they are for the SBA 7(a) Program. The CAPline is broken up into Four (4) types of CAPlines that are used for Lines of Credit but the use is different and some of the rules are also different. I will explain each below starting with the most used and then will describe the three lesser used CAPlines.

1) The Working Capital CAPlines are a Line of Credit that is based on the companies generated Accounts Receivable (Sales made but the cash is not collected). The use is to finance short term Working Capital Needs of the borrower. The Targeted processing time is 6 days. The Maximum Maturity is – Up to Ten Years. Collateral will be a 1st Lien on Accounts Receivable and Inventory but may take additional Collateral to ensure a 1:1 Collateral Ratio. The rest of the attributes are the same as the SBA 7(a) Program.  

2) Contract CAPlines are used to finance all costs associated with specific contract(s), but not Profit. May be revolving. Collateral is an Assignment of the Contract Proceeds. The rest of the attributes are the same as the SBA 7(a) Program.

3) Seasonal CAPlines are used to finance Seasonal Working Capital Needs of the borrower. They can be revolving. A 30 day zero balance each year is required. Collateral is a First Lien on Seasonal Inventory and Receivables. The rest of the attributes are the same as the SBA 7(a) Program. 

4) Buildings CAPlines are used to finance the Direct Costs associated with the Building of a Commercial or Residential Building. Borrower must have Previous Building Experience of the same type. Speculative Building is allowed with Documentation to Support Likelihood of Sale. Collateral is No Less than a Second Lien on the Real Estate Project. The maximum Maturity is 5 years. The rest of the attributes are the same as the SBA 7(a) Program.  

1) Maximum Loan Amount – Limited to $5,000,000 to one borrower.

2) Percent of Bank Guarantee – The Guarantee is 85% of loans $150,000 or less and 75% of

     loans over $150,000

3) Interest Rate – Maximum Interest Rate is Prime + 2.25% for loans with maturities under 7 years.     Prime + 2.75% for loans with maturities over 7 years. Rates can be 1% higher if the loan amount     is between $25,000 and $50,000. Rates can be 2% higher if the loan amount is $25,000 or

    less.

4) SBA Guarantee Fees – Maturity of 12 months or less the fee is 0.25%

                                        Maturity over 12 months:

loan amount of $150,000 or less is 2.0%

                                                        loan amount of $150,001 to $700,000 is 3%

                                                        loan amount of $700,001 to $5,000,000 is 3.5% up to $1                                                                    million PLUS 3.75% of portion over $1 million.

Banks have a problem with making a Line of Credit for more than one year at a time. Thus the program is under used. The way to approach the bank is to make the loan for one year and then extend the loan toward the end of the maturity. The borrower will pay the guarantee fee of 0.25% the first year and if extended into year 2 the borrower will pay the remaining guarantee fee for the difference of the two maturities or 0.25% plus the 1.75%. if the loan is $150,000 or less. The Guarantee Fee is raised to whatever the Guarantee Fee would have been for a loan over 12 months with the that particular loan amount, and the borrower will pay the difference in that Guarantee Fee.

Please call or Email me with any questions or comments. Contact info and other information is located on my webpage at www.schlueterfinancial.com or Email me directly at roger@rogerschlueter.com 

                                        

Most Business People think that if you are not a citizen, then you cannot get a Small Business Loan though the Small Business Administration. This is a misnomer but the Small Business Administration does not make it an easy process. I am going to give the General Rules but the SBA’s SOP (Standard Operating Procedure ) covers the process in much more detail. 

The bank when filling out the paperwork for a SBA Loan will hopefully also fill out the SBA Loan Eligibility Form. This form asks if all the principals are U.S. Citizens. If the answer if false, the banker needs to fill out the Alien Ownership Eligibility Addendum (Addendum A ). This Form asks several questions in a, Yes or NO format.

1) If you are an Undocumented ( illegal ) alien, you are NOT ELIGIBLE FOR SBA FINANCING.

A) If you are A DOCUMENTED ALIEN, then you must obtain USCIS Verification of the Status of the documented alien using USCIS Form G-845. You can Submit this USCIS Verification to the SBA with the Application. Electronic Verification is Available by E-Mail to SacramentoAlienVerification@SBA.gov

2) Is the business at least 51% owned by individuals who are either U.S. Citizens or have Legal Permanent Resident (LPR) Status and who control the management & daily operations of the business. If Box Checked then the applicant is not subject to additional requirements:

i) The application must contain assurance that management is expected to continue in place indefinitely and has U.S. citizenship or verified LPR status.

ii) Management must have operated the business for at least 1 year prior to the application date

iii) Management must provide a personal guaranty, unless the Lender’s Credit Memo explains why this guaranty is not needed, and

iv) Collateral is pledged that is sufficient to pay the loan in full at any time.

These USCIS Verification and Alien Ownership Requirements need to be met. The loan will be ineligible until they are met.

3) If the Applicant is a Foreign-Owned Business then the Applicant needs to comply with the following: 

 Be located in the U.S.,

 Operate primarily within the U.S.,

 Pay taxes to the U.S.,

 Use loan proceeds exclusively for the benefit of the domestic operations

 Use American products, materials and labor

 Separate continual and consistent management of the business has been provided by a U.S. citizen or by a verified LPR and will continue indefinitely

 Management has operated the business for at least 1 year prior to the application date

 Management will provide a personal guaranty, unless the Lender’s Credit Memo explains why this guaranty is not needed, and

 Collateral is pledged that is sufficient to pay the loan in full at any time

This is not an End-All for Non-Citizen obtaining a SBA Loan. The absolute End-All is given in the SBA’s SOP under the Subpart B, Chapter 2, III. Eligibility Requirements, E. Businesses Owned by Non-Citizens. The SOP devotes five pages to this subject. 

Please address any questions or comments to roger@rogerschlueter.com or visit my website at schlueterfinancial.com   

The SBA Patriot Loan is actually called the SBA Patriot Express. This loan is a mixture of using some of the rules of the SBA 7a Program and some rules of the SBA Express Program. The Bank must be SBA Express Loan eligible, in order to use the Patriot Express Program.

. 

The loan is Limited to a Total Loan Maximum of $500,000.

The SBA Percent of Guarantee is the same as the SBA 7a Program. The Program guarantees loans of $150,000 and less, 85% of the loan balance at any point in time of the loan term. The Guarantee is 75% for loans over $150,000 up to the Maximum of $500,000.

The Use of Proceeds is the same as the SBA 7a (Term loans for land, building, equipment, inventory, working capital, refinance, leasehold improvements and seasonal line of credit.) but the Patriot also lets the bank finance Revolving Lines of Credit up to a seven year maturity. 

The Maturity for the Patriot Loan is up to 7 years on Revolving Lines of Credit and the same as the 7a Program for Real Estate 25 years, Equipment/inventory/working capital 10 years.

Maximum Interest Rate is the same as the SBA 7a program which is less than the SBA Express Program. The Max Interest Rates are: 

Loans less than 7 years

$0 to $25,000 is Prime + 4.25%

$25,001 to $50,000 is Prime + 3.25%

Over  $50,000 is Prime + 2.25%

Loans 7 Years or Longer you can add a half a point (add 0.50%) to each category.

Guarantee Fees are charged on the on the guaranteed portion* only. The fee is 0.25% on loans with a maturity of 1 year or less. The Guarantee Fee on Loans over 1 year in maturity are 2% for loans up to $150,000 and 3% of loans over $150,000. 

* Loan is for $100,000 then the 2% would be levied on 85% of the $100,000 or $85,000 for a Guarantee Fee of $1,700.

Who Qualifies: same as the SBA 7a Program. The business needs to be For Profit, meet 7a Size Standards, show Ability to Repay, Eligible Type of Business, and be of Good Character.

– in Addition the Patriot Express Loan business must be owned and controlled by one or more of the following groups:

Veteran

Active Duty Military

Reservist or National Guard Member or spouse of any of these groups

Widowed Spouse or a Service Member or Veteran who died during Service or of a 

Service-Connected Disability

Turn Around Time – The turn around time is suppose to be 24 hrs but that may very. The Turn Around is still faster than the other programs.

The Main Advantages:

Fast Turn Around

Maximum Loan of $500,000

Lower Rate than the Regular Express Program

Streamlined Process

Easy to Use Line of Credit

No Collateral for Amounts of $25,000 and less

Please contact me if you have any questions at roger@rogerschlueter.com or visit my website at schlueterfinancial.com for other information.

Obtaining a Business Commercial Loan can be very labor intensive for the borrower because of the volumes of information that is asked for by the Bank. The borrower, I’m sure thinks: is all this information necessary, and what information does the bank really check?

This is a list of what the bank checks and what it may not check:

1) Your will be asked to provide a Personal Financial Statement. This document will ask about Assets that you own and Debts that you have. 

A) Assets: Most Cash and Savings Account will rarely be checked and they can change daily,

             so these numbers are a moving target. Most banks do not call the Banks of Account to get

             a balance. If you have too much cash they may ask you to put this money in the deal.

    – Accounts Receivable are a number provided by the borrower and usually are not asked                  to be checked.

   – IRA’s or Retirement Accounts cannot be used as collateral on a loan so the bank usually

             has no need to verify these accounts.

   – Life Insurance Cash Surrender Value may be used as collateral for any Business

             Commercial Loan so the bank may check this value.

           – Stocks and Bonds again are a moving target but the bank may want to use these as

              collateral also, so the Bank may want verification of their value.

           –  Real Estate can be checked as to the Perceived Value and the Mortgage that you have                   on this property. Remember, you are not an appraiser so this is your Perceived Market

             Value.

   – Automobiles, again this is you Perceived Value of your Automobiles.

   – Other Personal Property, this is your personal effects: furniture, tools, jewelry, clothes,

              equipment, collections and anything that you own personally that has a Perceived Value.

   – Other Assets can be anything you own that has value. Usually it is used for a Business that

              you own or some special asset that you want to value separately. Again this is your

              Perceived Value.

Liabilities: Liabilities are a little easier. Pull your Credit Report and report everything that

            shows up on this report. Some financial entities do not report to the Credit Bureau and you

            want these two to match (your liabilities and the liabilities on the Credit Bureau). Loans on

            life insurance do not usually report to the Credit Bureau. Report unpaid taxes only if they

           are owed for a prior year to the IRS.

C) Salary or Other Income: this should be reported as the Gross Amount before Taxes and

            other Deductions. Contingent Liabilities (Legal Claims or Judgments) that show up on the

            Credit Report should be Reported.

2) Always use numbers that are reported on Tax Returns for Personal and Business because the Bank will usually have you sign a 4506 -T which is a form to check on the Tax Return Information Reported to the IRS.

3) Resume: if you have provided one, are usually not checked for Accuracy. 

4) Projections of Income and Expenses are just that: they are Projections and are rarely checked

    for accuracy but may be checked with an Industry Publication to see that the averages are within

    the industry guidelines. Such publications are RMA or S & P averages.

Summary: You need to make sure that all your numbers that you report can be matched with a Credit Bureau or some other report such as a Tax Return. Many items are of a subjective nature, such as the Cash, Accounts Receivable, and Personal Assets. All values that you give for Real Estate or Vehicles are you Perceived Value, I would always err on the side of High.

Please email any questions to roger@rogerschlueter.com or visit my webpage at schlueterfinancial.com     

 

 

You have just submitted a Commercial Loan request to a bank though the Banks Loan Officer. You forgot to ask when the Officer would have an answer for your Commercial Loan. Thats O.K. you think, he will call when it is approved. You wait a week, maybe two weeks before you call him. You are told that they need a little more time and that the approval will be another week. That’s O.K. you think what’s another week. After another week and a half you call the officer only to find out that he is on vacation or out of the office. You have waited a total of three and one half weeks almost a month and you have no idea when the loan will be approved. This senario is more common that you think. I have had borrowers tell me they waited up to three months only to be turned down on the loan.

What can help is to have all the information that is needed by the loan officer at the first meeting. This will include answers to all of his questions. If you have all of the information needed and all of the questions thought out and answered, in case the loan officer asked about those questions, then you would think they would at least get you an answer in a couple of weeks. Don’t bet on it! The bank can be as subjective as they want on a Small Business Loan as long as they don’t discriminate according to Race. Nationality, Religion, Sex, Marital Status and Age (as long is the person is of age to have the capacity to contract). It seems there is a rule that says that if the Small Business is denied credit and the small business asks the bank why, then the bank has 30 days to respond and has to keep the application for one year. This has nothing to do with the making of a decision – the bank can take as long as it wants to make a decision on the loan. 

Most Loan Officers have a Business Loan Quota, each month, quarter or year, to reach. The quota is not an the number of loans but the dollar amount of all loans made. This Loan Amount threshold can be in place to reach Bonuses or to just Keep Their Job. They do almost the same analysis on small and larger loans, so it is not big surprise that they try to concentrate on the large loans which will help them meet their quota. Loans of under $100,000 are almost always put aside to work on other larger loans. 

Real Life Example: I have a business buyout by a daughter to buy her fathers business. The purchase price is approximately $140,000 and the father will take back a note for any amount to make the deal work. The only collateral is $80,000 in Equipment. This deal was looked at by three banks initially. One large bank and two small banks. The larger bank denied the loan first but said they might do it if they get $10,000 Cash Down and an Appraiser to verify the equipment value. The other small bank took approximately six weeks to turn the loan down and the third small bank has yet to respond in 2 months and one week. This is with phone calls being made at least twice a week. The banker usually does not return your phone call. The one banker tells us the same thing, “I have to finish writing up this loan this afternoon and will get a second signature needed to approve it in the morning”. The loan officer said this same excuse for at least five times, he must think we are really stupid or he is smoking crack.

You may think the larger bank has said they will approve this loan but the borrower does not have $10,000 cash to put into the deal and an Equipment Appraiser usually costs in upwards of $2,000 or more. This is cost prohibitive in my opinion because the equipment is only worth $80,000. I will try to update this article when I get an answer to the third bank. We have showed this loan to another three banks and we are very hopeful that one will entertain this loan request with an approval. Banks are very careful at this point in time and they are not lending to make money but are lending to, “not lose money”.

Try to nail the bank down to a timetable when presenting a loan to a bank. Try to hold the loan officer and the bank accountable. This is very hard because the bank will remember if you go over the banker head or report them to regulators. You are stuck because you need the bank to lend to you and you cannot complain or report them. The regulators realize this but refuse to enact any real regulations to prevent it. The regulators are in place to keep the bank in line and lending according to the Bank’s Loan Policy, not to help the Small Business Borrower. 

Please email me with any questions or comments. My email is roger@rogerschlueter.com My website is schlueterfinancial.com and you can find more info and my contact info at the website. 

The SBA Form 912 Statement of Personal History has mainly two purposes: 

1) The main purpose of the form is to weed out the Criminals or Persons of Poor Character. This is subjective if the Offence was years ago or if the person has been convicted of a crime.

2) The second purpose of the form is to run a name check to see if the individual is on the list of possible Terrorists.

Both of these checks are done by the FBI and there can be substantial penalties for any untruthful answers to any of the questions.

The main questions on the form are questions 7, 8, and 9. They all deal with any type of arrest or criminal charges that may have been dismissed, discharged or convicted. SBA sends these forms to the FBI and they will pick up things that you thought, never really got anywhere. These questions along with the question on being a U.S. Citizen are all initialed by the applicant. The SBA will not process unless the borrower initials these questions. 

SBA says in their SOP (Standard Operating Procedure) that the SBA cannot provide financial assistance to businesses with Associates that are incarcerated, on probation, on parole, or have been indicted for a felony or a crime of moral turpitude.

An application can be a accepted for processing if the individual indicates an arrest record, but was acquitted or the indictment was dismissed  and the individual is not incarcerated, on probation or on parole for any offence.

An individual with a deferred prosecution is treated as if the individual is on probation or parole Such an applicant is not eligible. 

The SBA Form 912 is used to determine eligibility. If the individual answers yes to question 7 the then the applicant is not eligible. If the individual answers yes to questions 8 or 9 then the the individual must go though a background check which usually requires a Finger Print Card being printed and sent with an detailed explanation of the situation. 

This process of the background check can take months so if at all possible you need to see if the local SBA Office can handle the Eligibility Approval. The local office can usually waive or approve situations of up to a certain level. This should always be pursued first. Feel free to check the SBA’s SOP for further information – there is about seven pages devoted to the subject under the Eligibility Section of the SOP.

Please email me with any questions to roger@rogerschlueter.com or go to my website for more contact information at schlueterfinancial.com  

 

You would think that the smaller the loan, the easier it would be to find financing. This is a major fallacy unless you have a CD to pledge or Equity in your house that is more than 20% to 25% of the Current Market Value. Loans of $25,00 to $100,000 are very hard to finance for three reasons:

1) Loan Officers do the same amount of work for small loans as they do for big loans

2) Banks can use SBA for loans of any size but have a reluctance for small loans because of the work involved in the SBA process.

 

3) Banks do not think of SBA for borrowers needing very small amounts of $5,000 to $50,000. The SBA can guarantee loans of $25,000 and less and SBA lets them receive 2% more in interest if they will do the smaller loan. (The rate on a SBA Loan is, Prime + SBA Rate = Max Rate of Interest) The SBA Max Interest Rate on a loan $25,000 or less is 3.25% + 4.75% = 8%. Most banks do not realize they can charge this much for a small loan. The SBA Max Rate on a Loan of $25,001 to $50,000 is 3.25% + 3.25% = 6.5% for loans less than 7 years and 3.25% + 3.75% = 7% for loans more than 7 years. 

The Borrower will usually want to provide a Co-Signer to bolster the loan. Most Banks do not have Co-Signers anymore but they want Co-Makers. The difference is that a Co-Maker is actually on the Note and Loan, and the bank can make the Co-Maker uphold the Terms of the Loan just like they were the original Borrower because they are the Original Borrower. Banks can also get a Guarantee from another party but on the Co-Maker and the Guarantor they usually want some form of Collateral to Secure the Guarantee or to Secure the Note. People that sign on a Loan usually have a reluctance to Pledge Specific Collateral on the loan. Examples of Collateral that a Bank would want include their Home or Cash in an account or CD. Sometimes they will take an Automobile or Land or something else that has perceived value.

Banks Also look at people that can not come up with $5,000 to $25,000 as not as good a risk as people who have some wherewithal in their Income or Assets. I always find it funny that a Bank will tell the borrower to find someone else to finance the business for the first year or so, and then to come back to the bank for financing. Newsflash: Those Borrowers who have found, even part of the money on their own, are not coming back to the bank who turned them down! I have another Article on this blog on Non Bank Sources for Financing. 

Please also see my Website at www.schlueterfinancial.com for additional information including contact information.