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Laurie Owen: Loan Lesson

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SBA-backed loans let you keep working capital in reserve for cash flow, says Laurie Owen.

{loadposition laurieowenheader}

[h3]Loan Lesson[/h3]

[dropcap cap=C]omplete this phrase: “I’m from the government and I’ve come to…”[/dropcap]

If you finished it with “lend you money,” you’d be in the minority, but you’d be right on the money. I’ve been singing the praises of Small Business Administration-backed loans for a while now because they offer owners the ability to buy and develop their own locations and equipment with little down and the payments spread out over a much longer period.

This means you get to keep valuable working capital in the bank in reserve for cash-flow needs while keeping your monthly payments low.

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Let me give you an example of an actual deal involving the purchase and remodel of an existing property. In this example, the borrower put down 10 percent of the project costs, but based on the borrower’s business plan, recouped that down payment through the funding of working capital at the completion of the construction process. This sample in the “Money Math” chart below is courtesy of Paul Jokerst, a loan officer with CIT Small Business Lending.

The loan was amortized for 23 years, with three months of no payments during construction (the interest accrued during those three months was rolled into loan proceeds). As noted, upon the completion of the project, the borrower actually had $3,900 more in cash than when the project started.

Compare this scenario with a traditional loan that might require as much as 25 percent down with a shorter term of 10 years. In that case, the borrower would have been required to provide a down payment of almost $400,000 towards the project and then subsequently be locked into higher monthly payments.

To qualify for an SBA-backed loan like this, you’ll need to:

[inset side=right]Don’t borrow for the sake of borrowing and don’t expand because everyone else is doing it.[/inset]• Show on-site management of an owner with at least 20 percent ownership.
• Provide a full guaranty of all owners with 20 percent or more ownership.
• Have good credit history.
• Show a business plan focused on a new location.
• Provide a one-year month-by-month cash-flow projection.
• Show a debt service coverage of at least 1.25 times the new debt payments. In other words, if your new debt payments will be $7,500 per month, you’ll need to show that you have at least $9,375 in cash flow to pay the principal and interest each month.
• Provide at least three years of federal tax returns, year-to-date statements and current accounts payable and receivable statements.

Don’t borrow for the sake of borrowing and don’t expand because everyone else is doing it. But if you’ve done your homework and found the right site, take a look at these loans, especially if you’d like to keep a hold of your working capital. CIT is a nationally lending source, meaning they can lend to any qualified business in the United States. You might also find a local bank that specializes in SBA-backed loans.

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Laurie Owen is senior vice president at Business Resource Services. Contact her at [email protected].

[span class=note]This story is from the April 2008 edition of INSTORE[/span]

 

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Wilkerson Testimonials

If It’s Time to Consolidate, It’s Time to Call Wilkerson

When Tom Moses decided to close one of the two Moses Jewelers stores in western Pennsylvania, it was time to call in the experts. After reviewing two candidates, Moses, a co-owner of the 72 year-old business, decided to go with Wilkerson. The sale went better than expected. Concerned about running it during the pandemic, Moses says it might have helped the sale. “People wanted to get out, so there was pent-up demand,” he says. “Folks were not traveling so there was disposable income, and we don’t recall a single client commenting to us, feeling uncomfortable. It was busy in here!” And perhaps most importantly, Wilkerson was easy to deal with, he says, and Susan, their personal Wilkerson consultant, was knowledgeable, organized and “really good.” Now, the company can focus on their remaining location — without the hassle of carrying over merchandise that either wouldn’t fit or hadn’t sold. “The decision to hire Wilkerson was a good one,” says Moses.

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Laurie Owen: Loan Lesson

mm

Published

on

SBA-backed loans let you keep working capital in reserve for cash flow, says Laurie Owen.

{loadposition laurieowenheader}

[h3]Loan Lesson[/h3]

[dropcap cap=C]omplete this phrase: “I’m from the government and I’ve come to…”[/dropcap]

If you finished it with “lend you money,” you’d be in the minority, but you’d be right on the money. I’ve been singing the praises of Small Business Administration-backed loans for a while now because they offer owners the ability to buy and develop their own locations and equipment with little down and the payments spread out over a much longer period.

Advertisement

This means you get to keep valuable working capital in the bank in reserve for cash-flow needs while keeping your monthly payments low.

Let me give you an example of an actual deal involving the purchase and remodel of an existing property. In this example, the borrower put down 10 percent of the project costs, but based on the borrower’s business plan, recouped that down payment through the funding of working capital at the completion of the construction process. This sample in the “Money Math” chart below is courtesy of Paul Jokerst, a loan officer with CIT Small Business Lending.

The loan was amortized for 23 years, with three months of no payments during construction (the interest accrued during those three months was rolled into loan proceeds). As noted, upon the completion of the project, the borrower actually had $3,900 more in cash than when the project started.

Compare this scenario with a traditional loan that might require as much as 25 percent down with a shorter term of 10 years. In that case, the borrower would have been required to provide a down payment of almost $400,000 towards the project and then subsequently be locked into higher monthly payments.

To qualify for an SBA-backed loan like this, you’ll need to:

[inset side=right]Don’t borrow for the sake of borrowing and don’t expand because everyone else is doing it.[/inset]• Show on-site management of an owner with at least 20 percent ownership.
• Provide a full guaranty of all owners with 20 percent or more ownership.
• Have good credit history.
• Show a business plan focused on a new location.
• Provide a one-year month-by-month cash-flow projection.
• Show a debt service coverage of at least 1.25 times the new debt payments. In other words, if your new debt payments will be $7,500 per month, you’ll need to show that you have at least $9,375 in cash flow to pay the principal and interest each month.
• Provide at least three years of federal tax returns, year-to-date statements and current accounts payable and receivable statements.

Advertisement

Don’t borrow for the sake of borrowing and don’t expand because everyone else is doing it. But if you’ve done your homework and found the right site, take a look at these loans, especially if you’d like to keep a hold of your working capital. CIT is a nationally lending source, meaning they can lend to any qualified business in the United States. You might also find a local bank that specializes in SBA-backed loans.


Laurie Owen is senior vice president at Business Resource Services. Contact her at [email protected].

[span class=note]This story is from the April 2008 edition of INSTORE[/span]

 

Advertisement

SPONSORED VIDEO

Wilkerson Testimonials

If It’s Time to Consolidate, It’s Time to Call Wilkerson

When Tom Moses decided to close one of the two Moses Jewelers stores in western Pennsylvania, it was time to call in the experts. After reviewing two candidates, Moses, a co-owner of the 72 year-old business, decided to go with Wilkerson. The sale went better than expected. Concerned about running it during the pandemic, Moses says it might have helped the sale. “People wanted to get out, so there was pent-up demand,” he says. “Folks were not traveling so there was disposable income, and we don’t recall a single client commenting to us, feeling uncomfortable. It was busy in here!” And perhaps most importantly, Wilkerson was easy to deal with, he says, and Susan, their personal Wilkerson consultant, was knowledgeable, organized and “really good.” Now, the company can focus on their remaining location — without the hassle of carrying over merchandise that either wouldn’t fit or hadn’t sold. “The decision to hire Wilkerson was a good one,” says Moses.

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