EXPANDING YOUR EXISTING SMALL BUSINESS:

Almost every owner of a small, medium or large company at some time in the life of the business has either expanded or wanted to expand. Since you already have a profitable small business, chances are, you will be able to qualify for a SBA loan to assist you. You may request funds for any reasonable business purpose. Expanding your company normally will translate into more tax dollars and most important, additional job creation. The SBA is especially interested in assisting you achieve those goals. Your company must still meet all of the necessary requirements of a loan such as good credit, historical cash flow, collateral and eligible uses of proceeds.

A Small Business Owner Can Make An Application To SBA For A Number Of Uses Such As:

• To Purchase Real Estate*
• To Purchase Machinery And Equipment
• To Purchase Furniture And Fixtures
• To Make Leasehold Improvements On Leased Property
• To Consolidate Debts Or Convert Short Term Loans
• Request Working Capital Or Accounts Payable Reduction

Machinery, Equipment, Furniture & Fixtures Purchase Versus Leasing:

In most cases, with an SBA loan a small business can finance 100% of the equipment cost (including installation costs) whereas equipment leasing companies normally do not cover any installation costs associated with the leased equipment. Additionally, leasing companies will require a down payment and most of the time, a security payment. Most equipment financing will have a healthy pre-payment penalty associated with an early pay-off.

Very rarely if ever do leasing companies or commercial lenders provide a fully amortized loans for 10 -15 years. Most conventional financing would only be for five to seven years. Additionally, SBA loans do not carry a pre-payment penalty on loans that are less than 15 years. Please be aware, that in some cases, the SBA may require additional collateral such as a lien on other business assets, or even personal collateral.

Consolidate Debt By Refinancing & Accounts Payable Reduction

You can use SBA loan proceeds to refinance or consolidate short term existing business debt under the following conditions: SBA will require proof that proceeds from the original loan(s) or Note(s)which may since have been refinanced or renewed and any subsequent financing, was used for a valid business purpose. The Note(s) being refinanced must be fully secured. The business would have to show an annual savings or some form of other tangible business benefit from refinancing or consolidating the existing debt, or show that the existing terms and conditions of the Note, lease or any other debt being paid off are on UNreasonable terms.

Let’s clarify the above SBA conditions. First of all, the original loan must have been for a valid business purposes, such as equipment purchase, leasehold improvements, working capital, inventory, etc. If we can document this fact, and particularly that the borrower did not use any of the funds for personal use such as investment, etc., the loan would qualify to be refinanced by the SBA.

Next, the loan or Note wishing to be refinanced needs to be a secured loan. Typically the holder of the Note or loan would have filed a UCC Financing Statement against the company. Unsecured loans, such as unsecured lines of credit, or loans from family members, etc., cannot be refinanced by the SBA.

An important point to remember, is that the SBA will not consider refinancing an existing fully amortized loan, unless we can demonstrate that the cash flow will be improved by at least 20% or more. The most common form of refinancing, are short-term loans with up-coming balloon payments that could create a burden on the business and its cash flow. The most common types of debt consolidation is paying off numerous high interest loans or credit lines.

Working Capital:

The most needed small business financing, but the one most misunderstood by business owners, is the Working Capital loan. There are two distinct types of working capital loans:

Conventional Lines Of Credit, whether secured or unsecured, are typically used for short term needs. Some small businesses require seasonal money to cover them through the peaks and valleys, for increased sales with corresponding receivables, or for projects that are bigger or larger in scope than the business can handle with current cash flow. These working capital loans are normally paid back by the business through liquidation of assets, i.e., A/R, contracts completed and paid, etc., and are normally not handled by SBA loans.

The type of working capital loan, which we are more familiar with and the SBA will consider, is the term loan used for business expansion. These funds are needed to finance additional inventory, a second location, a new line of products, additional personnel to provide services, etc. These loans are paid off from cash flow generated by increased profits from the expansion activities

While the traditional line of credit normally has collateral built into it, the working capital term loan, such as the SBA 7 year working capital loan, normally will require additional hard assets as collateral which can be in the form of business and or personal assets. In some cases, both types of collateral will be required. In other cases, just one or the other. The main difference between the SBA loan and the conventional line of credit is the long term maturity of up to 7 years.

A Conventional Lender May Turn Down A Working Capital Loan Request For Various Reasons

• The Loan May Be Too Small Or Too Big For The Bank's Lending Limits
• Insufficient Borrower Longevity or Profit
• The Borrower Could Be Too Highly Leveraged
• The Financial Statement Ratios Do Not Meet Or Fall Into Bank's Lending Criteria
• Borrower Is Not Within The Bank's Lending Area
• Insufficient Or Lack Of Collateral

In some cases a small business may be able to qualify for a conventional Line of Credit to handle short term working capital requirements. In most cases, the line is insufficient to fully support the overall needs of the growing company. We can assist the business by combining the Line of Credit with an SBA Term Loan for the additional working capital requirements. The combination of the two types of loans can help make the difference between a successful company or one that fails or stays stagnant.

* Please Check Our Real Estate Section For A Full Discussion Regarding The Excellent Terms And Benefits To Your Small Business

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