SBA-backed loans are down 31% in South Florida. The new SBA SOP (standard operating procedures) has made the rules more onerous for business exiting and Entering clients and prospects. A constant refrain we hear from banks is we would have done this deal a year ago. In the past, we would have placed loans with 1-2 target banks and typically that was good enough. Now we place packages at 3-5 lenders and are constantly researching new lenders’ risk parameters and appetite for loans by market segments.
This is the toughest borrowing market we at Bankers Advocate have seen in 10-15 years. What steps can you take to make sure a lender will fund your transaction?
- Books and Records Current and Error Free – Many posts in this blog harp on this subject, but it is even more important in this tough lending environment.
- All Loans Now Require a Business Plan – A good idea before becomes a requisite now. Much of the data gathered during the third party appraisal process can be used in a business plan. Having the data will make this go smoother and faster. Also, it is a good learning and team-building exercise for the Entering and Exiting entities to work on this together.
- Third-Party Evaluations Required – We have never taken an assignment without one being done. It is good to see the SBA back us up.
- Source of Equity – Rules have tightened on borrowing monies against your house and other assets. Coverage on this new debt cannot be only covered by the cash flow from the new business. Verification of funds by the lender has been made stricter too. Documentation and analysis need to be done prior to the loan being submitted.
- Change in Ownership must Benefit the Business – This is a tricky one, but we can help write the narrative for the loan documentation.
- Exiting Seller Financing – Lenders like to see the Business Exiting party “invested” in the process. Some amount of seller financing is encouraged and even required on some deals by the SBA.
- Experience of Entering Buyer – A good resume, track record and tying this together with a good business plan is paramount. This needs addressed early in the process as this variable has become a deal-breaker.
Deals (and loans) are still getting done, but planning, structure and choosing the correct lender(s) is even more critical in these challenging times.