Helping small firms borrow money - Small Business Administration

Nation's Business, Jan, 1992 by J. Tol Broome, Jr.

5. Credibility Of Management. This is a key factor considered by the bank and the SBA in underwriting a loan request. Your technical expertise in the industry as well as your general management background will be scrutinized closely. Present this information in a resume.

6. Capital For Your Business. One popular misconception of the SBA is that the agency will allow 100 percent financing of a start-up.

For a new venture, the SBA requires that the borrower's equity equal at least 30 percent of the totoal amount needed to start the business.

Most of this equity usually has to be cash, although personally owned vehicles, furniture, and equipment transferred to the company sometimes are allowed to count toward the equity injection.

For existing companies, the SBA generally looks for a projected debt-to-worth ratio of no more than 3-to-1 subsequent to the making of the loan. Supply information on the sources of any new capital, whether from you or another investor.

7. Cash Flow. Cash-flow projections will be analyzed very closely because income will provide the source of repayment for the proposed loan.

For an existing business, prepare three years of realistic projections, using your past performance to substantiate your assumptions. For a start-up, the projected cash-flow levels must be based on logical and conservative assumptions that take into account such factors as industry comparisons, market-share estimates, and reasonable operating costs.

And don't forget to factor in the effects of the proposed loan on cash flow.

8. Shareholders' Statements. All stockholders with 20 percent of more ownership in your company must personally guarantee the entire loan. Each individual must submit a financial statement no older than 90 days.

9. Collateral. Although the SBA is not a "collateral lender," security is still a major component of the agency's underwriting procedures. List assets you propose to offer for collateral (including assets to be purchased with loan proceeds). Include a description of the assets, their remaining useful life, their value, and your source of valuation.

10. Organizing The Presentation. According to one SBA representative, the most common complaint heard from lenders using the 7(A) program is the lack of preparation by many potential SBA borrowers. Be thorough in reviewing the information that you have prepared in steps 1 through 9 to ensure that it is orderly, accurate, and not contradictory.

A final word: The SBA is not a pushover in considering proposals for guaranteed loans. Adequate preparation based on the preceding steps will enable you to approach the agency with a sound, professional proposal that will enhance your prospects for success.