Please ensure Javascript is enabled for purposes of website accessibility

Tag: sba

Is an SBA loan right for your business?

Many business owners look at outside financing as a way to manage and grow their business. Small Business Administration (SBA) loans are one avenue to assist business owners with growth plans, including business purchases, partner buyouts, business expansions, owner-occupied real estate purchases, construction, renovations, buildouts, refinancing business debt, start-up franchising and working capital needs.

If you think an SBA loan may be right for your business, it’s a good time to connect with your banker or a local lender.

Are you preparing to buy or expand a business? Acquire a building or renovate an existing space? Start a new business? Many of these growth opportunities require capital or business financing and an SBA loan may be a suitable option.

SBA loans can be more flexible and favorable than conventional lending and are designed to assist borrowers who cannot get financing elsewhere. The 7a loan program is the SBA’s most common loan program, although other options may be available or more suitable for your business needs.

What many business owners don’t know if that the SBA utilizes banks as partners to facilitate SBA loans. These loans are partially guaranteed by the SBA, which allows banks to provide financing for businesses on terms that may not be attainable elsewhere, but the SBA itself does not lend.

Here’s a list of the top eight items to compile so your banker or lender can quickly and efficiently assist in your reviewing business financing options, securing the best rates available and ensuring a smooth transaction.

1. Use of Funds: Your lender will need to understand and collect a detailed description of what the funds will used for. For example, a letter of intent or a contract for a purchase or a budget detailing purchase costs, equipment, working capital expenditures and more.

2. Current Financial Statements: If you own your own business(es), or are looking to purchase an existing business, we will need to review the financial statements of that business(es). Prepare to send an income statement and balance sheet, dated current within the last 90 days.

3. Business Tax Returns: If you own your own business(es), or are looking to purchase an existing business, be prepared to send the last three years of business tax returns for all businesses.

4. Business Debt Schedule: If you own your own business(es), please provide a business debt schedule detailing your current business loans, leases, lines of credit and any PPP/EIDL obligations.

5. Personal Tax Returns: Plan to provide your last three years of personal, filed tax returns.

6. Personal Financial Statement: Please prepare a personal financial statement showing your income, assets, and debts. You can ask your lender for a template if you do not have one.

7. Personal Resume: Lenders always want to understand that you have the experience needed to run your business so please provide an updated resume with your loan package.

8. Business Plan & Projections: Lenders want to understand WHY you need these funds – maybe you are building a new facility to host more clients or are buying a plumbing business from a retiring owner. Either way, we want to understand your short- and long-term plans for the business. It is best to include income projections with your business plan to help us understand how funding this loan with help your business grow and thrive financially. You can ask your lender for a template to get you started.

Before any lender approves a loan, they need to understand you have the experience to manage the business, the collateral to cover the risk and enough cash flow to repay your debt. While the list of documents described above is a good launching point for your financial package, be prepared to provide additional items to your banker or lender and answer additional questions around your financing request, as needed. Lenders will also review items such as credit score, history of business owners, financial strength and availability of a cash down-payment into the business.

If you think an SBA loan may be in your future, it is best to start taking any steps necessary to strengthen both your personal and business financial profile and connect with a local banker or lender to find out what options are available for you and to assist as you move towards your business financial goals.

Tomfrancis Tom Francis is a Senior Vice President, SBA and Commercial Lender for InBank. He has over 20 years of experience in the banking and financial services industry as an SBA and commercial banker assisting businesses with SBA 7a and SBA 504 loan products, commercial lending for equipment, lines of credit and other solutions for business acquisition lending, partner buyouts, owner occupied purchase and ground up construction financing. Reach him at [email protected].

SBA issues new guidance regarding the Paycheck Protection Program Flexibility Act

SBA, in consultation with the U.S. Treasury, will promptly issue rules and guidance, a modified borrower application form and a modified loan forgiveness application implementing these legislative amendments to the PPP.  These modifications will implement the following important changes:

  • Extend the covered period for loan forgiveness from eight weeks after the date of loan disbursement to 24 weeks after the date of loan disbursement, providing substantially greater flexibility for borrowers to qualify for loan forgiveness.  Borrowers who have already received PPP loans retain the option to use an eight-week covered period.
  • Lower the requirements that 75 percent of a borrower’s loan proceeds must be used for payroll costs and that 75 percent of the loan forgiveness amount must have been spent on payroll costs during the 24-week loan forgiveness covered period to 60 percent for each of these requirements. If a borrower uses less than 60 percent of the loan amount for payroll costs during the forgiveness covered period, the borrower will continue to be eligible for partial loan forgiveness, subject to at least 60 percent of the loan forgiveness amount having been used for payroll costs.
  • Provide a safe harbor from reductions in loan forgiveness based on reductions in full-time equivalent employees for borrowers that are unable to return to the same level of business activity the business was operating at before February 15, 2020, due to compliance with requirements or guidance issued between March 1, 2020 and December 31, 2020 by the Secretary of Health and Human Services, the Director of the Centers for Disease Control and Prevention, or the Occupational Safety and Health Administration, related to worker or customer safety requirements related to COVID–19.
  • Provide a safe harbor from reductions in loan forgiveness based on reductions in full-time equivalent employees, to provide protections for borrowers that are both unable to rehire individuals who were employees of the borrower on February 15, 2020, and unable to hire similarly qualified employees for unfilled positions by December 31, 2020.
  • Increase to five years the maturity of PPP loans that are approved by SBA (based on the date SBA assigns a loan number) on or after June 5, 2020.
  • Extend the deferral period for borrower payments of principal, interest, and fees on PPP loans to the date that SBA remits the borrower’s loan forgiveness amount to the lender (or, if the borrower does not apply for loan forgiveness, 10 months after the end of the borrower’s loan forgiveness covered period).
  • In addition, the new rules will confirm that June 30, 2020, remains the last date on which a PPP loan application can be approved.

About the U.S. Small Business Administration (SBA)

The U.S. Small Business Administration is the only go-to resource and voice for small businesses backed by the federal government. The SBA empowers entrepreneurs and small business owners with the resources and support they need to start, grow or expand their businesses or recover from a declared disaster. It delivers services through an extensive network of SBA field offices and partnerships with public and private organizations. To learn more, visit www.sba.gov.­

Navigating the SBA’s most recent PPP guidance

On May 13, the Small Business Administration (SBA) released additional guidance addressing the good-faith certification made by PPP borrowers that “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.”

Notably, the new guidance results in two safe harbors:

  • Loans under $2,000,000: Any borrower that, together with its affiliates, received a PPP loan of less than $2,000,000 will be deemed to have made the required certification in good faith.
  • Loans Over $2,000,000: Any borrower that, together with its affiliates, applied for a PPP loan prior to April 24, 2020 and received a loan of $2,000,000 or more, and repays that loan in full by May 18, 2020 will be deemed to have made the required certification in good faith [FAQ No. 43].

Borrowers with loans over $2,000,000 who do not repay the loan by May 18 may still have an adequate basis for making the required certification, based on their individual circumstances.  Providing some relief to these borrowers, if the SBA determines that a borrower lacked an adequate basis for this certification, the SBA will seek repayment of the loan and the loan will not be eligible for forgiveness.  Borrowers who then repay the loan will not be subject to additional penalties.

Unfortunately, this new guidance provides little comfort to borrowers outside the $2,000,000 repayment safe harbor, which will still be subject to review.   For such borrowers, the SBA will review the good-faith certification of necessity of the PPP loan, taking “into account their current business activity and their ability to access other sources of liquidity sufficient to support their ongoing operations in a manner that is not significantly detrimental to the business.”

To assist such borrowers, the following analysis separates the existing guidance around this certification of necessity of the PPP loan into its component parts:

Current business activity of the borrower

Businesses entirely shut down by governmental orders (such as restaurants, bars and gyms), likely meet this threshold as their current activity has been substantially and irretrievably damaged. Outside of these examples, businesses that can demonstrate a clear and significant downturn in their business directly related to the closure orders likely meet this component.

Borrower’s ability to access other sources of liquidity

A business with substantial available cash and untapped credit facilities probably does not meet this component. It is unclear whether businesses that could access capital from other sources that are not readily accessible, such as additional equity investments, are considered to have another source of liquidity.

Other sources of liquidity sufficient to support the borrower’s ongoing operations

In the circumstance where a business does have an untapped credit facility, is the availability under that facility sufficient to cover ongoing operations in the current climate? What is unknown is whether a business must consider full utilization of its credit facilities in determining its eligibility.

In a manner that is not significantly detrimental to the business

If accessing a source of liquidity would force the business to substantially curtail operations or place on future operations substantial managerial, cash flow, or other restrictions, then this component may come into play. An example may be a business that by tapping its credit facilities and not receiving any PPP proceeds, would be forced to close later this year, but by tapping PPP proceeds and taking other steps, is able to preserve its available capital and utilize it to later maintain operations and payroll.

 

Key to the above analysis is demonstrating that absent PPP loan proceeds, the business would be unable to maintain its ongoing operations and level of employment.

As the eligibility review will likely be conducted in at the time a borrower applies for forgiveness, each borrower should take the following steps:

  • Have a robust analysis prepared at the time of the loan application that reflects the need for the PPP loan;
  • Maintain a detailed tracking of the PPP proceeds to ensure they have been used as permitted;
  • Track actual operations to the analysis performed at the time of the loan application and to prior economic downturns;
  • If there have been employee reductions, accurately track employment numbers and dates of furlough and rehiring;
  • Detail other steps taken to maintain operations; and
  • Demonstrate other liquidity resources, if available.

The above should be documented on a current basis, at the time of application and as the borrower utilizes its PPP loan proceeds.

Read about more best practices for PPP loan documentation.