Connect with us

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.

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

Advertisement

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]

 

Continue Reading
Advertisement

SPONSORED VIDEO

Wilkerson Testimonials

Retirement Made Easy with Wilkerson

The store was a landmark in Topeka, Kansas, but after 80 years in business, it was time for Briman’s Leading Jewelers to close up shop. Third generation jeweler and owner Rob Briman says the decision wasn’t easy, but the sale that followed was — all thanks to Wilkerson. Briman had decided a year prior to the summer 2020 sale that he wanted to retire. With a pandemic in full force, he had plenty of questions and concerns. “We had no real way to know if we were going to be successful or have a failure on our hands,” says Briman. “We didn’t know what to expect.” But with Wilkerson in charge, the experience was “fantastic” and now there’s plenty of time for relaxing and enjoying a more secure retirement. “I would recommend Wilkerson to any retailer considering a going-out-of-business sale,” says Briman. “They’ll help you reach your financial goal. Our experience was a tremendous success.”

Promoted Headlines

Most Popular

Columns

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:

Advertisement

[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.


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

Continue Reading
Advertisement

SPONSORED VIDEO

Wilkerson Testimonials

Retirement Made Easy with Wilkerson

The store was a landmark in Topeka, Kansas, but after 80 years in business, it was time for Briman’s Leading Jewelers to close up shop. Third generation jeweler and owner Rob Briman says the decision wasn’t easy, but the sale that followed was — all thanks to Wilkerson. Briman had decided a year prior to the summer 2020 sale that he wanted to retire. With a pandemic in full force, he had plenty of questions and concerns. “We had no real way to know if we were going to be successful or have a failure on our hands,” says Briman. “We didn’t know what to expect.” But with Wilkerson in charge, the experience was “fantastic” and now there’s plenty of time for relaxing and enjoying a more secure retirement. “I would recommend Wilkerson to any retailer considering a going-out-of-business sale,” says Briman. “They’ll help you reach your financial goal. Our experience was a tremendous success.”

Promoted Headlines

Most Popular