I am a veteran and was discharged January. I am seeking the american dream and owning a business of my own. I went through SBA and they were great with assisting me, but the bank says they will not be able to provide a approval letter until two months out. I have an agreement with the seller to give an answer end of March. The banks don't seem to care too much about that at least not as much as I've been told through ACAP and various sources. I did go through the SBDC. I started the process well over 2 months ago with the promise that it will be a quick process since I did provide ALL paperwork needed. (Schedule c, tax income statements, ETC.)
Answers
SBA of course only guarantees the bank loan. You should make sure the bank is at least committed to make the loan assuming a SBA guarantee. You can do this by asking the bank for a commitment letter subject to the guarantee being put in place. I would make sure either seller financing for the full amount needs or the bank is in place before spending further dollars on the acquisition. If the bank commitment isn't forthcoming, you can try to renegotiate with them by blending some seller financing (subordinated) to make the bank loan work.
Good Luck!
Jim
Giang, the holdup on the loan is probably the SBA. Government-backed loans take longer. When we started our business, we were surprised by the pace and proceeded without the SBA.
Without knowing the details, I would suggest asking family if you could borrow a portion of the money. Do not ask for more than they can afford to lose, heaven forbid the business does not do well. This may be sufficient to carry the business until the SBA-backed loan is approved. The fancy term for this is a bridge loan, because it bridges the gap between now and when the other financing gets completed.
Another option is to bring in a partner who could provide financing. That partner would receive a portion of the business.
Since you mention a seller, I assume that this means you are buying an existing business. The seller may be willing to finance all or part of the purchase. In essence, you buy the business from the seller and create a loan (a note) with the seller. Depending on how desperate the seller is, he or she may be willing to provide a lower interest rate than the bank. [As an extra piece of advice, always finish negotiating the price before you even hint about financing.]
A final source, if you are buying a business, are its suppliers. They may be willing to provide discounts on purchases or favorable terms (not having to pay invoices for 30, 60 or 90 days) in order to keep you as a customer. I would not approach them as you needing money, but as a way to cement the relationship between your two companies. While this does not bring in money directly, it decreases how much you need to keep the business going, possibly reducing how much you need to borrow. Again, not knowing the details, may make this advice worthless.
I hope that this helps. Best of luck!
Giang.....first, thank you so much for your service. The SBA lender will not commit 100% in writing until they have gone through the entire process of processing your loan paperwork and they will say as little to you as possible to avoid liability. But if they are asking you for information...and for an SBA loan there will be a lot of paperwork...that means they ARE moving forward to get your loan approved. Unfortunately if youre working with an SBA preferred lender..just ask them if you don't know... you can bet they are also working with many other clients with limited staff and underwriters. Smaller SBA preferred lenders don't do near as many SBA loans therefore lack the experience/knowledge about an SBA loan and a lot of times will turn you down because the risk is on them to make a safe and sound loan and they aren't confident they are doing that.
If you have not done this already, I would suggest writing up a contract to purchase with a contingency that states if financing does not go through, the contract is null and void...put other contingencies in there as well if you have them and I would suggest having a transaction attorney draw up the contract. If the business has been on the market awhile or If the seller has not had other offers they will be more willing to do this. Make it legal.
If you have other questions feel free to message me.
Tamme
Most banks will provide an equity line of credit.
The equity could be your home, land, business or other.
Talk with your bank's loan officer.
I started my residential rental business using a equity line of credit for the down payment.
Then as the equity in the building increased, I used this equity to purchase more rental buildings.
Good Luck,
Paul
You mention that you are using a credit union. Credit union and banks have substantially different business lending rules. Have you contacted a federally regulated state or national bank?
Jim, how long does that usually take? I just recently went through credit union. They told me that they won't be able to provide that type of letter until end of April. They weren't really helpful. I had trouble with providing an interim and my business relation officer did nothing to help. Mind you I've provided more than enough financial information. (I.e personal financial statement, debt schedule, etc.)
Barry,
Thank you very much, I will be attempting to do the bridge loan. Hopefully, the loans from friends and family have longevity. My brother and I are buying. He has a similar business in which we're attempting to buy. We've provided schedule c for prior years.
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