Category: Start-up Loan Articles

Small Business Shysters

Article by Roger Schlueter, MBA

Small Business Shysters are everywhere but very prevalent in the Small Business Lending Field. A Financial Loan Adviser or Loan Packager should be able to tell you, the Small Business, exactly what they can do for you. Very, Very, Few can guarantee that they can obtain financing for you. When approached by a Loan Person who says they can guarantee anything, then get it in writing and do not ever pay the full amount up front. It is customary for an adviser to get an amount up front because they will be, hopefully, Expending Time on putting together a Proposal or Financial Package for you. This is often done because if the borrower decides not to do the project then the Financial Professional could be, “out the time spent on this project”. I usually get a Payment of one half of the project fee up front and then the receive the remainder of the Fee when the project is complete or a milestone is achieved.
I hear of a Small Business being taken by a Small Business Loan Shyster at least once each year. Usually the Small Business wants to get a loan for his or her business and is turned down by their bank. The Small Business then contacts a Small Business Consultant who says they can obtain financing for the Small Business. This Shyster Consultant gets most if not all of the money paid up front and says they can Assure or Guarantee that the Small Business will obtain financing for their project. This financing does not occur. Then the Small Business goes to a Public Entity Funding Source at a City or County and inquires about the Public Entity getting the financing. Most Public Financing Sources will let a Small Business apply but do not write Business Plans or Bank Proposals. They do not have the Personnel or the Time to do this work and will definitely not Guarantee that the project will be approved. The Small Business being scammed, once already, will not engage any paid consultant for fear that the same results will occur as the first time.
They usually end up leaving the Public Entity because they cannot get their financial work done for Free. Very few Financial Consultants will work for Free and if they do there is always the question of the quality of the work being done for Free. A consultant that helps a Small Business obtain Financing should be Educated with at least some sort of Financial Degree but a MBA is the Best. I have seen some Accountants and Attorneys that are good but the real test is how many clients have they worked with and been successful in obtaining financing.

Please address any comments or questions to roger@rogerschlueter.com

SBA 7a Forms New as of 2014

Article by Roger Schlueter, MBA

Updated on September 20, 2015
 The New Forms are: SBA Form 1919 and 1920. The Form 1919 and Form 1920 are on the Website and are in fill-able form.
SBA Form 1919 is to be Completed by the Borrower or an Agent of the Borrower. The Form is then sent to the Bank, who is actually lending to the Borrower. This form is sometimes filled out by the Bank and signed by the borrower.
– The Form 1919 asks for the general information from the borrower like, Name of Business, Your Name, Your SSN, Date of Birth, Place of Birth. Then it asks information of Veteran, Race and Gender information, (of Course this info is just used for Program Reporting Purposes Only).
– A Series of 22 questions is then asked about everything from, if you have been arrested?, Are you a Citizen?, Is the Business a Franchise?, Do you own Affiliated Businesses?, Number of Jobs to be Created?, Have You Used a Packager or Broker?, Is Construction involved?, and Several Conflict of Interest Questions.
– The Form then lists all of the Federal Laws etc. on two pages and then on the last page is where the Borrower signs and dates the Form.
SBA Form 1920 is to be Completed by the Bank that is making the loan. This is called the: Lender’s Application for Guaranty for All 7(a) Programs. This Form is 13 pages but covers the Borrower General Information, the Loan Amount, The Term and Interest Rate, Again Race, Gender, Ethnicity, and Veteran Information. The form covers the Use of Proceeds (what the money will be spent on), Info on Change of Ownership of the Business, and then nine pages of Eligibility Questions and finally a Signature Page for the Banker to sign.
Other Borrower Information: The borrower will still have to have the financial and cost information that will be attached to this Application. This info is: Personal Financial Statement of Borrower, Tax Return for at least one year from Borrower, Business Financial Statement for three years. Sales and Earnings Projections, Cost Documents for Assets being purchased and any  other information the SBA deems necessary.
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Form 1919 and Form 1920 are Fill-able Forms.
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This is a Big Change but the information is the same, just a different form. The SBA used the same forms for decades but now it seems to change forms every year. Many bankers and business owners are confused by the constant change of rules and documents, but remember, the Fiddler calls the Tune. Please address any questions or comments to this Blog or email me at roger@rogerschlueter.com

SBA Credit Scoring Small Business Loans

Article by Pat Osborn, MBA

SBA will now credit score all 7a Guaranteed Loans of $350,000 or less. Obviously they do not think much of the Borrowers that get the “Small Loans” of up to $350,000. SBA will do loans up to $5,000,000 that’s Five Million Dollars. The Loans of up to $350,000 seem to be a nucience since the SBA does not look at loans approved but the DOLLAR VOLUME and The JOBS CREATED. These are the things that they can use in there marketing to publishise  there Mission. That Mission is to generate as many Large Loans as they can so they can use those High Numbers to Show How Great They Are. Anyone in the Real Business World knows that most of the Small Business Loans are less than $350,000 and the SBA is not helping the people that they say is there Mission – Small Business. 
SBA said in a meeting on January 22, 2014 that they did not know how the SCORE was arrived at or what criteria was in the Score. They leave that up to FAIR ISSAC to determine. If that is the Case then how do they know they are doing loans that the banks cannot make on their own?
Obviously it is easier to Credit Score Loans similar to the BIG BANKS, and the large banks have long been criticized for using Credit Scoring to limit the number of Small Business Loans that they do. Some larger banks do not do loans under $250,000 and will tell borrowers to put it on a Credit Card. 
I don’t know where the SBA People live but you would think they could just go outside and ask small business owners on the Street, What is a Small Business Loan to Them, and I bet They are going to Say That a Small Business Loan is anywhere from $50,000 to $500,000. It is a pretty big business that needs a loan of One Million Dollars or More. Don’t get me wrong, I think it is Great that SBA will do loans up to Five Million Dollars but I don’t see those large loans in my Neck of the Woods. I feel that SBA should do a Reality Check and go outside there offices in Sunny California and walk the streets of Midwest America and see what most small businesses are needing. I think they would be surprised. 

Nonverbal Messages in Commercial Lender Meeting

Article by Roger Schlueter

Nonverbal Messages in Commercial Lender Meetings need to be Listened to with Keen Observation. A meeting with a Banker is a rare occasion and should be treated with the Preparation of a Final Exam. Most meetings start with the Banker asking you to describe your business and the need for the loan. This is always to see if you Know Your Stuff and to provide the Banker with enough information to see if he wants to waist his time in Analyzing the Loan Request. The Banker should be listening to you and should not be looking at your information or looking at his computer or doing anything except for listening to your loan request. 
If you give him any information, which you should, give him a Summary of your Oral Presentation. This Summary can be looked at by you during the meeting as an Outline to make sure you are on track to discuss or talk about all your concerns. Do Not give him a 30 to 100 page Business Plan because he will be leafing through this booklet during the whole meeting and will not be listening to you. You can give him a Detailed Business Plan after the meeting has wound down and you feel confident that you have concluded your presentation. 
The Banker should be: Number One – Listening Intently and Asking Questions Periodically. You should have his total Attention and again he should not be looking at anything, (other than your Summary), including his computer or gazing out any windows. Number Two, he should seem interested in your business and your Loan Presentation. Again asking questions to clarify any part of your presentation. Number Three, the Banker should ask you before he runs your credit but when the meeting is over and your have applied for credit he will run credit as soon as possible. Some bankers have ran credit on his computer when you are in his office but again he should ask you before he runs credit before you have concluded your presentation. Number Four, the Banker should ask you for any additional information that he needs at the end of this meeting. Some banks have a separate Application. This Application allows them to run credit and is usually proprietary to that bank. Some banks just use the Personal Financial Statement as your request for credit and run credit as soon as they have this document. Number Five, the Banker should at the end of the meeting move to the next step in the loan process and tell you what that Process is going to be like, including a timetable for a decision and a timetable for the funding of the Loan Request. 
Now just because the Banker is interested in you doesn’t mean he is your best bud. He works for the bank and will do whatever the banks wishes are, whether those wishes are open or have a hidden agenda. The real thing to look for is a genuine interest and his attention during your loan meeting. Remember to be like a Boy Scout, “Be Prepared”. I would also visit at least three banks because there is a great deal of varying viewpoints as to what is considered a good loan.
Please direct any questions to this blog or to roger@rogerschlueter.com    
  

New SBA Small Loan Application 2014

Article by Roger Schlueter, MBA

The SBA is having any SBA 7a Loan that is $350,000 or less to use a New Application to SBA. The New Application will be a Revised Version of SBA Form 1919 and 1920. The Problem is that the New Application is not Approved for Use as of January 1, 2014, the Start of the Program and as of this date, is still not Approved. The SBA Small Loan Application is not out yet but they say to use these Forms: 
Borrower – Form 1919 Borrowers Application and SBA 912 (Personal History Statement)
Bank- Form 1920SX Part B and Part C.
 
– These Forms were created for the Express Program and thus were not created to do all SBA 7a Loans. There will be parts these forms that will tell you the loan is not eligible or will not conform to the New Rules – like the new SBA 912 Form. 
– Best way to handle these Problems is to Asterisk the Problem Area and then to Explain Elsewhere in the application or as an Added Addendum to the Application. 
I Will try to keep you informed of the New Application as soon as it comes out. Until then Feel Free to use the old Express Forms, that may not be suited for Your SBA 7a Loan Application, that you are sending in to SBA.

The First Commercial Loan Screen is Your Credit Report

Article by Roger Schlueter, MBA

Commercial Lenders are busy, (Playing Golf, Talking to Friends, Buying things on the Computer, Planning Vacations), and Oh Yea, Looking at Loans. 
My First Commercial Lending Job, I had a Prospect that I didn’t think was a very good Commercial Loan and I wasn’t sure how to look at the Borrower. My Superior Lender told me to, “Just Run Credit and then Turn it Down”. Thus my first lesson in How to Turn Down a Loan, just Run The Credit and if it’s Bad, Turn it Down. This is really bad when the borrower took the time to write up a full blown Business Plan or Fill Out the Banks Application and bring in all the Items Requested by that Application. 
Since, The First Commercial Loan Screen is Your Credit Report, Run Your Credit Before Applying for a Commercial Loan and See What it Says About Your Credit! If your score is relatively high, like over 700 then you have little to worry about. Their are several negative items that are not a real negative to banks and they are: Health Related Collection Items, Cell Phone Collection Items, any Small Collection or Owed Item that is a matter of Principal for the Borrower. Some people buy and sell real estate and have many Credit Report Hits on their Reports. These can be easily explained. The real problem is Habitual Credit Problems that don’t seem to ever be rectified. These are real Problems for Banks. Many Banks will even give a Commercial Loan to someone who has had a Bankruptcy if the Bankruptcy has been at least a couple of years ago and the borrower has had good credit ever since. 
Bankers and Lenders are Real People Too and they will many times accept an explanation for a Negative Credit Reported Item or Report Itself. The banker will ask you about these Items and expects you to have a ready response. They do not want to see the “Deer in the Headlights Look”, when they ask you a question about your Credit Report. They expect you to give an insightful explanation as to what happened or the situation that existed which hurt your credit. I have had many times that the borrower said he or she had good credit when asked, but in reality had the worst credit imaginable. They had to Know, they had to have gotten calls from creditors. The banker would rather have an Explanation than be blindsided with an Absolutely Terrible Report. 
What is Bad Credit? You Ask. Bad Credit historically has been a Score that is below 600. A Score of 600 to 650 is probably definitely below average but in some cases could be explained. A Score of 650 to 699 is Passable but not the Best and a Score of 700 Plus is considered Excellent. The Credit Reporting Agencies have raised the scores needed to qualify for what is considered Good. Pre 2008 a passable score was a Score of 620 or Higher. Now that Passable Score has been raised to closer to 670 and above. Most small banks and/or Community Banks have the ability to be discretionary when it comes to Credit Scores. The Large banks have a number that may move up or down but that number is an absolute. Have a Score blow the number and the loan will be declined, have a score above the number and the loan will be approved. 
Summary: always check your Credit Report and be ready to quote the Score and also to answer questions about the individual Payment History of any of the Creditors Listed on the Report.
Please refer any questions to this blog or to roger@rogerschlueter.com  

Bank Business Loan Approval – Be Sure to Get Approval in Writing

Article by Roger Schlueter, MBA

Congratulations! You have a Bank Approval for your Business Loan. Your Banker has told you verbally that your business loan was approved. They are just waiting on the Underwriter to Finish Up the Approval or Process. 
I Hate to Break It To You but “Your Loan Has Not Been Approved”. Your Loan is Not Approved Until You Sign Your Loan Documents! You should always get the approval in writing. Even if the approval is in writing, it is usually written with so many ways out for the banker and many Written Loan Approval Confirmations have a disclaimer at the end of the Letter that will say that this approval can be denied for several reasons. 
Statements in the Approval Letter:
1) Approval Contingent on the Building or Business or Equipment Appraising at the agreed upon Amount and be acceptable to the bank.
2) The amount of agreed upon Equity will be put into the project.
3) All Hazard and other Insurance will be acceptable to the bank.
4) “These Conditions are only general terms on which the loan will be extended and is not an exhaustive statement of terms and conditions of the loan.”
The Catchall of coarse is number 4, where the bank says there may be additional terms and conditions that are not included in this letter. 
The Written Approval Letter will give you some security but most will not hold up for you in Court. The letter is better than a verbal approval which for some banks is the only approval you will get. You can of course have your Lawyer call their Lawyer and pay an enormous amount of money to get an absolute approval, but this could jinx the Deal, or Slow the Approval or Loan Process Down to a Snails Pace. 
Just Remember: THE LOAN IS NOT APPROVED UNTIL YOU SIGN THE LOAN DOCUMENTS!!! 

Please address any questions or comments though the blog or email me directly at roger@rogerschlueter.com 

SBA 7a Business Loans can be more Forgiving than SBA 504 Business Loans

Article by Roger Schlueter

SBA Loans can be very confusing but this may clear things up. The SBA 7a Program was the Original SBA Loan. The SBA 7a Loan is a Guarantee of a Loan Made by a Bank. The SBA Guarantees up to a certain percent of the loan balance as an incentive for the bank to make the loan. This Guarantee is currently 85% on loans of up to $150,000 and 75% of loans Over $150,000. Almost all SBA Loans (Excluding the SBA 504 Loan) are Subsets of the SBA 7a Loan. The SBA 7a Loan is for all types of Business Loans from Real Estate, to Equipment, to Inventory, to Working Capital. The 7a Loan is also a Higher Cost Loan than a Conventional Bank Loan or a SBA 504 Loan. The Main Reason the Loan has a higher cost is the Guarantee fee which is 2% of loans up to $150,000 and 3% or More for loans above $150,000. The 7a Loan also has a 0.05% Fee that the bank has to pay on an ongoing basis.
The SBA 7a Loan was created so that banks could fund loans to small business were there might be a problem area. The Problem Areas are Collateral – not enough, Equity – SBA will allow as little as 10% and can also give credit to Equity already in business, Credit – Banks want excellent Credit but SBA will allow imperfect credit as long as the problems are not Habitual, Industry or Business – Banks are more careful when lending to businesses that have a History of Problems like Restaurants and Leisure Activities.
The SBA 504 Loan was created so that Growing Businesses could assess Long Term Fixed Rate Capital to fund their Growing Business. The SBA 504 Loan can only be used for Fixed Assets like Real Estate or Equipment that has a Useful Life of 10 years or More. The 504 has a minimum Requirement of 10% Cash Equity, (Construction of a Building can use the land as the 10% Equity). Approval Process for the 504 is two fold, they must be approved by a Local CDC (Certified Development Company) which is usually made up of Bankers and then seek the SBA Approval. The SBA 7a on the other hand must only be approved by SBA. Both Loans must be submitted by a Bank or Financial Institution.
All in All the SBA 7a Program is more forgiving than any other SBA Program in Lending to Small Business. The 7a Loan can also be used for Refinancing, Inventory, Vehicles, Any Equipment, Working Capital and Good Will, and of course Real Estate. The Credit Criteria seems to have a lower bar than the SBA 504 Program and the Equity requirement is more Flexible. Small Business Loans that can qualify for the SBA 504 Program sometimes will have an easier time qualifying for the SBA 7a Loan for all the Reasons given above.
Please go through the Blog for Questions or you can asses me directly at roger@rogerschlueter.com
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Real Estate Appraisal for Property and Improvement

Article by Roger Schlueter

Borrowers that are buying an Existing Building and making improvements to that building must make sure that the Bank orders the Right Kind of Appraisal. The Right Kind of Appraisal when you have an Existing Building with Improvements to be made to the Building is An “AS IS and AS COMPLETED” Appraisal. This Appraisal will look at the Existing Building you are buying and Value It as it sits. The Appraisal then Adds the Improvements and Values the Building with those improvements Added. An Appraisal that only has a Value of the Building with Improvement makes it Impossible to see if you are paying too much for the Building or Making Improvements that are not Adding to the Value of the Real Estate. 
All Appraisals Value Real Estate three ways. The First Way is as if the building was built from the ground up, The Second Way is the Market Value when compared to like properties that have sold in the most resent past. The Third Way is the Income Approach, and looks at the Value when the property is Rented Out and valued by the Income that is generated on a Future Value of those Dollars. These Three Methods  are always used but given different Weights depending on the importance of the Method. 
Example: You have an Existing Building that is Ten years old or more. This is not equal to a Newly Built Building so the Built from the Ground Up is not Appropriate and is not used. The Best Value is what like properties have sold for in the most resent past. The Market Approach is Appropriate and is used. The Income Approach is also Appropriate and is also used. The Value will be somewhere in between these two values. 
Most Banks will ask for an Appraisal that is “AS IS and AS COMPLETE”, but sometimes they do not and the values are lumped together. This lumping the Existing Building and The Improvements makes it impossible to tell if the the building or improvements are overvalued in an Appraisal that is Higher than the Borrower is willing to pay or the Bank is willing to lend. This type of an Appraisal helps the Borrower know if it is worth pursuing the Real Estate or if the improvements need to be reconfigured or reduced.
Please comment or send questions thru Blog or directly at roger@rogerschlueter.com

Business Banking – Putting all Your Eggs in One Basket

Article by Roger Schlueter, MBA

All Banks want you, the Business, to move all your Accounts to your New Bank. They can actually “Tie” the Bank Accounts to your Business Loan. Meaning they can make you move your Business Banking Accounts to any bank that gives your a Loan and make the Loan Contingent on those Business Accounts being put into the New Bank. The bank cannot make you use a certain Insurance Company but they can Tie the Business Loan Accounts to any New Loan that they will make and it is completely legal. 
Having all your Business Dollars in one Bank can be beneficial if the business is doing well and you do not ever have any problems with Sales or Earnings and do not anticipate any problems in the future. If your business is having problems then its a different story. Most Banks will Curtail all lending and may even Cut Lines of Credit or Not Renew Loans to any Business that is having problems with Sales or Earnings, or any Business Condition that is considered to be a Risk for the Bank. Your Loan Officer is Paid by the Bank and will support any such moves by the Bank because he or she works for the Bank, they do not work for You, the Business. 
Some Businesses decide to have several Banking Relationships, Usually Two, which they can count on in a pinch. Most Banks will differ in their tolerance of Risk and they will differ in their Lending Criteria and their Loan Policies. This is why many businesses decide to have more than one Banking Relationship, even if it is just a Banking Account at another banking institution. Even if a Bank tells you that you need to move all of your Business Banking to their bank as a Condition of Your Loan Approval, you can usually tell they you will move your accounts after the loan is made. After the loan is made most banks forget about the conditions and they have more pressing projects to work on. The Bank will usually catch the condition of moving all your Business Banking when the loan is renewed. Whether they take it seriously will depend on the Competition at that time and the financial condition of your company. If your company is doing well and you can easily move to another bank then they will not make you move all your accounts, but if you are doing OK or are slowing down then they will tell you that in order to renew your loan you need to move all your accounts to their bank.
Having all your Eggs in One Basket can be beneficial or it can be a nightmare depending on how well your business is doing and how well the economy is doing. Do not trust any financial institution to do what is Good for Your Company, The bank will do what is Good for The Bank. Forget this one Statement at Your Peril. 
Please contact me with any questions or comments though this blog or email me at roger@rogerschlueter.com