Small Business Loans–FAQ

The Basics

Its History?

SBA Community Express Loans (or government small business loans) began as a pilot program in 1999. It was originally devised as a cost saving measure so that SBA personnel would be freed from the time and expense of complicated paperwork in processing loans internally through their agencies. The idea was to transfer this process to private lenders and technical assistance providers, while still being monitored and guaranteed by the SBA.  Because of the popularity of the program, it has been extended in 1998, 2002, 2005, 2006, 2007, 2008, and several times after. Unfortunately, this popular program was canceled by the SBA on April 30, 2011.  However, the SBA Patriot Express (veterans and their spouses/widows) and Export Express loan programs (in business for one year or more and have the potential of selling goods or services–for example through a website–to anyone living outside the Untied States) are still available.

Are these loans or grants?

These are unsecured small business loans only and not grants.

SBA guaranteed loans?

Some people use the phrase “SBA guaranteed loans”. The way it works is simple: A private bank loans the money and if there is a default, the Federal government pays the lender a percentage of the defaulted amount. This gives the lenders more incentive to make the loans.  Some people are confused and instead think the approval of the loan is guaranteed, which is not the case.

How did the Stimulus Act change them?

President Obama signed the American Recovery and Reinvestment Act of 2009  (”Stimulus Act’) on February 17, 2009.  Essentially, it took the same SBA programs and made them “new and improved.”  Section 501 of the Act eliminated the SBA loan guarantee fee (2% of 85% of the loan amount). This is a fee collected at the time of closing from each borrower. This fee is then sent to Washington to defray any bank losses.  In other words, if you don’t pay your loan, the bank can request reimbursement from the Federal government. Instead, we as taxpayers are now subsidizing this payment. It originally expired on December 28, 2009 but was re-enacted by Congress. It expired again on February 19, 2010. It is hoped Congress will vote for reinstatement soon. On the other hand, the fee is relatively small. For example, on a $10,000 loan, it is a tax deductible fee of $172, taken out of the proceeds upon closing.

Additionally, Section 502 of the Act increased the guarantee percentage (how much the Federal government will reimburse a bank for a defaulted loan) from 85% to 90%.  As of February 19, 2010, this was rolled back to 85%.

The Lenders

What loan brokers Should I  trust on the internet?

Good question–there are so many out there its hard to tell the honest ones from the shams.  Use the keyword “Small Business Loans”  or a variant on Yahoo and Google, and you’ll see page after page of companies promising quick, “guaranteed”, unsecured loans for hundreds of thousands of dollars.  Be very careful.  In fact,  only an extremely small number of lenders are currently making small business loans. We get calls every day with the following scenario: I talked to a lender who was very friendly, told us they were interested, and are making small business loans. They took our application as well as set up a business account. Then we waited. And waited.  Every time we called, it was in a different loan committee. Then they asked for more documentation. Finally, two or three months later, after constant prodding, they told us we were being turned down.  In actuality, the banks are approving an exceptionally small number of applications—ones with absolutely perfect credit, 100% real estate collateral, and exceedingly strong profit and loss statements.

With few bank’s lending, loan brokers on the Internet are getting desperate.  They have come up with the latest scam:  charging upfront fees (may of which are non-refundable).  In the past they received commissions at closing, but few banks are lending.  So the only way they can stay in business is make promises and then keep the fee when they are unsuccessful (or offering a loan smaller loan than you want or at a higher fee)—claiming they tried their best and couldn’t find the right lender.

But they are not done with you. Stating they were unsuccessful because of your credit (which they should have told you in the first place), they launch into the next scam–asking for more money to clean it up.  You end up being out of pocket between $500 to $8,000 with no loan.  Never pay any loan broker an upfront fee. It is illegal under SBA Federal guidelines (the official Borrower Information Form—SBA Form 1919, specifically asks if you have paid a third party, other than the lender, for procuring a loan). In fact, there are people in jail for doing so.

We never have and never will charge any fee from a borrower for any of our services.  The only fee is from the lender itself.   And that fee is federally regulated, our SBA licensed lender charges its authorized processing fee of $450.00 ($550 for loans of $15,000 and above) only after you accept the loan and it is wired into your business account.

Is anyone lending out there?

In the current economic climate, few banks are making business loans. Here are some examples. In the summer of 2009 when the ARC loans were first introduced, Chase Bank received 600 applications one month and approved  two.  Wells Fargo had received over 17,000 inquiries and approved 34.  How about those odds? On the other hand, our lender is serious about making loans and funds every day.

How much time and effort do I invest to get one of these loans?

Traditional SBA loans were fraught with paperwork, including personal financial statements, two to three years of tax returns, profit and loss statements, business plans, marketing analysis, and other financials.  The SBA Express micro loans of 5K to 25K require minimal paperwork and none of the above.  Additional requirements may be requested by an underwriter, however, you will be working directly with a personal loan coordinator through the application process.

The one page application begins the process and gives you the answer within 48 hours. It takes approximately ten minutes.  Upon approval, you will fill-out the SBA application package, with simple instructions, which takes about fifteen minutes.

Are unsecured loans still available in this market?

If you are lucky enough to find a lender in our present economy, they will almost always require 100% real estate collateral (typically for loans of 50K and above) for the full amount of loan (the old 75% loan to equity ratios are long gone).  This is typically the equity in your residence. Up until a couple of years ago, you could find lenders who would loan against your business assets, including inventory, equipment, and receivables. This is now almost non-existent.  Be very careful of the promises by Internet brokers that they can secure an unsecured loan up to $500,000 or more.  If you find one who actually produces, we would love to know.

Our lender specializes in small loans which are the real thing.  They fund unsecured loans daily.

Who are the licensed lenders on these SBA loans?

These loans cannot be made by just any bank or finance company. Before being entitled to make such loans, the SBA goes through a rigorous evaluation process which culminates in the issuance of an SBA license. The available capital, knowledge and experience of the officers, commitment to small businesses, and credit review standards are thoroughly investigated.

Although the loans are actually made by the private institutions, the SBA takes an active role in monitoring and supervising their activities, subjecting them to review and audit annually.  This brings to the equation an extra measure of reliability.

Eligibility Requirements

What makes me Ineligible?

The following will make you ineligible per SBA guidelines: 1) defaulting on your student loan, 2) delinquent on child support, or 3) unpaid IRS liens.

State or Federal tax liens?

Assuming your credit is otherwise satisfactory, the mere fact that you previously had a state or Federal tax lien would not automatically make you ineligible. However, you would have to show there has been a lien release or a written agreement with the government allowing you to pay it off over time, with proof you are current under that arrangement.

Outstanding civil judgments?

Unfortunately, no bank will give you an unsecured loan if you have an outstanding civil judgment. It must be paid and released through a satisfaction of judgment filed with the court. Paying over time will not do. It must be totally satisfied. Note also there is a major difference between a judgment based on not paying your bills (collection account), and a judgment for some other reason. For example, if you have a judgment based on a personal injury action or a dispute with your insurance company, this has nothing to do with your character of paying your bills and would not be looked at as negatively.

Bankruptcy?

Many banks have a rule that they will not loan to persons who have gone through bankruptcy. The lender we use is different. They do grant loans to bankrupt individuals, but there are four conditions:  1) the bankruptcy has been concluded with an Order of Discharge, 2) you have re-established your credit, and 3) you have paid your bills on time after the discharge.

Criminal arrests and convictions?

Congress enacted this Program with the idea of allowing loans to individuals with “good character”. This doesn’t mean being a “nice person”, but instead is specifically defined as individuals who have satisfactory payment histories and are not involved in certain criminal activity.  Additional information may be required for certain criminal activity.

If I don’t have any of these factors, am I automatically eligible?

No. These are the minimum requirements. If you fulfill them, you will still be required to have your credit report reviewed.

What is Required?

Are business plans, financials, or tax returns required?

No. As mentioned, this Program has been specifically devised by the SBA to be low on paperwork. On the other hand, if you have prepared a business plan with financials, by all means include it–this can only help your application.

Can I use the loan to purchase a business?

This loan is for working capital purposes.  SBA guidelines prohibit the loan proceeds to be used for the purchase price of a new business  (including the goodwill).  All other purposes, such as purchase of inventory, equipment, assets, the lease, and the like are allowed.  Some lenders require proof of at least 10% capital infusion into your new business (your own money put up to start the business, as opposed to loans). There’s no such requirement with our lender.

Do I need collateral?

No. These are unsecured loans, and no collateral is required, such as real estate, inventory, accounts receivable, or machinery.

What kinds of businesses qualify?

Are start-ups allowed?

Yes. In fact, you can get a loan merely with a business idea.  Export Express loans require a minimum of 12 full months in business.

Are certain businesses ineligible?

Yes. Here are some examples: non-profits, gambling ventures, businesses of a religious nature, businesses of a sexual nature, management of your own investments (for example, owning and managing your own apartment building),  and speculative real estate (for example, buying property on foreclose, fixing it up, and selling).

Can franchises apply?

Yes. Strategies For Small Business has funded a number of franchises, including Quiznos, Mac Tools, 123 Fit, Curves, Cold Stone Creamery, Liberty Tax Services, UPS Stores, Subway, and many others.  If your franchise is listed on the Federal franchise registry (www.franchiseregistry.com),  there is no further review required. But even if not registered, it could still be approved by the credit manager by simply providing the franchise agreement to the lender who will (using SBA guidelines) determine whether there is too much control being exercised by the franchisor.

What can the loan be used for?

For any business purpose, including cash flow, working capital, rent, payroll, new employees, advertising (ads, fliers, business cards, etc.), buying inventory, computers, signs, office equipment and furnishings, and other business expenses.

Credit requirements

Introduction:

We all know the significance of credit in today’s world. It seems that every step we take involves the analysis of our credit report. Not only buying a car, getting a credit card, or securing a loan, but also situations we never suspected: applying for a job or signing up for a utility account. This becomes even more crucial when you consider these are unsecured loans. For example, when you buy a house or a car, the lender relies heavily on that security. With unsecured loans, the only thing the lender has to go on is your credit history.  Notwithstanding, we have helped thousands of businesses who might not otherwise have qualified for traditional bank loans.  Although certainly no guarantee, we will not deal with any lender that does not understand and appreciate the needs of a small business.

What kind of credit do I need?

Satisfactory credit.

What credit score?

There is no minimum.  A single credit score might work for the simpler approval of a credit card, but not unsecured small business loans.  Instead, the credit manager looks at every credit report, line by line, and makes a decision based on the business information provided about the business owner(s), including the credit report information.  Each application is reviewed by a personal loan underwriter and reviewed individually.

OK, I understand that, but can you give me some idea of my chances before I apply? Absolutely.  One of things we do is discuss a person’s credit history over the phone (confidentially without disclosure of sensitive information and with no copy of the report forwarded)  to give them an idea of their chances before they make the application.  In order to do this, simply get your recent credit report in front of you, call our office, and we would be happy to not only give you a general idea, but also make suggestions of improving your credit or disputing certain items. This is especially the case when you bear in mind  studies show the majority of credit reports have some errors on them.  Or, you can click onto the link on the homepage: “How to Dispute Credit—Free Download”.

What credit bureau do you use?

Experian personal report.

Do you look at business credit?

No. For example, Dunn and Bradstreet is not reviewed. However, we do pull business information for verification which is considered during the review.

If I get turned down, can I resubmit?

Absolutely.  We are not licensed credit counselors, but we frequently go over your credit report after you have been turned down.  You then have the option of writing a letter of reconsideration to the lender, describing in detail the negative items and requesting that they review the file again.  Most lenders do not have a formal system of reconsideration; we created it for the benefit of our applicants.

What if I don’t have much credit?

In the industry, no credit is bad credit.  The lender has to look at some kind of credit history before they make their decision.  Unfortunately, there are people that pay cash for everything and do not have such a history.  We envy these individuals because they are not in debt, but it is an impediment to securing a loan.  However, we have some suggestions of how to immerse yourself into the credit world without incurring a lot of debt.  If you call us, we can share our thoughts without charge to get you started.

Can you give me a decision over the phone without having to run my credit report?

As much as we would like to, this would be violative of lender rules and regulations of the SBA.  Your credit must be run before a decision is made.

Are these loans reported each month on my personal credit report?

These loans are not like credit cards and your monthly payments are not reported on personal credit reporting services.  However, if you are delinquent, it will be reported.

Will this build up my business credit?

Yes, and this is one of the benefits of the Program.  If you have a Dunn and Bradstreet number, the lender will be happy to report your payments so you can build up your credit with that bureau. We also love to give recommendations. If you have been paying on one of our loans for a while and are now requesting a larger loan or line of credit with your local bank, we would be delighted to speak on your behalf–not only indicate your good payment history, but more about your business which would certainly help in that review process.  Remember, that these are fully amortized loans. These are SBA loans that reflect well on you and your business.

Can I use a co-signer?

Anyone with a 20% or more interest in the business or has a significant role in the day-t-day operations of your business, at the time of signing the application, will have his or her credit checked.  You may include co-signers in addition to these requirements. Feel free to contact us for more details.

How Does the Process Work?

The process is quite simple and there is no need to complicate matters.  Click onto the “How It Works” tab on the home page and you will see how the process works, step by step.

How often can I apply?

You can apply for a new loan after six consecutive on time payments. And, there is no need to pay off your existing loan.  The application for an additional loan is the same streamlined process.   Although not a guarantee, many of our borrowers are successful with these repeat loans. The application for an additional loan is only $250 (after funding).  Your first loan balance, current business, and credit information will be taken into consideration upon review of an additional loan.

Can I apply simultaneously with another SBA lender?

No. You cannot have more than one SBA loan application at any one time.   The SBA has a prohibition of simultaneously applying for and receiving multiple loans with other banks under the same program.  So, if you are applying under our program, you could not make a similar application the same time with another lender.  You must wait at least 90 days to do this.

Do I get free help for my business?

The SBA has set up a system that provides free business  assistance.  They want you to succeed. Your needs are evaluated and recommendations are made.  This is called free technical assistance and it is administered by certified “technical assistance providers (“TAP”).  With this particular Program, a variety of resources are available free to you, including books, pamphlets, workshops, videos, templates, and “one on one” counseling.  The SBDC’s  (Small Business Development Centers) maintained by the SBA and SCORE (Service Corps of Retired Executives) are excellent sources and have regular programs and consultations.  Just let us know and we can give you more information.   Remember, it is against Federal regulations for anyone to charge for providing information about the Program or assistance in filling out the forms.  You should be wary of any individual or group that attempts to charge for these services.

Thank you for showing an interest in our program. Good Luck. Sue Malone.