Sba Loan Secrets

Puzzled by sba methods? George Heaslip is an exopert and undertsanding - and getting these loans.
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BORROWER LIQUIDITY Another “SBA Loans Professor” Update, April, 2015 George B. Heaslip [email protected] Call (561) 329-1315 for a free consultation on loan needs from $400,000 to $5,000,000 If a loan applicant has a suitable credit score, management experience, and a sufficient down payment, this is great, but personal liquidity can kill a loan application. Liquidity is frequently needed for post-closing working capital. Banks and non-bank lenders are now hoping for a credit score of 740 or higher. Depending on the business type, real estate component (if any) and loan amount, a required down payment can be from 10% to 25%. Fortunately, via the SBA program, a seller “standby loan” is allowed. This means that if the applicant does not have the full down payment amount, or wants to keep a “chunk” for working capital, the seller can hold a private note, usually for 2 years. For example, if 25% down is needed, the buyer with 15% and the seller with 10% can, in most cases, work. The seller collects, at the end on the “standby period,” a fine return, usually at a 6% interest rate. Importance of Personal Liquidity Each bank or non-bank SBA lender has a personal liquidity rule. Banks need to know what, after the loan closing, cash reserve the applicant has, in case of a “business bump.” Liquidity is also needed for working capital, which generally means new business cards, signs, computers, web site, etc., etc. Liquidity means how fast the loan recipent can convert his or her assets into cash in case of a business emergency. Liquidity is an emergency cash fund. Cash equivalent assets that comprise liquidity include: > Money market funds > Bank savings > Checking accounts > Home equity line of credit > Treasury Bills > Listed Stocks > US Savings Bonds > Short-term Bonds > CD’s > Annuities > Coins, gold and silver > Accounts Receivable (if a business is owned) > Notes receivable > Life Insurance Real estate and many types of collectibles generally have poor liquidity. This includes artwork, and raw land, because it takes too much time to sell (“unload”) them. Financial experts have long held that liquid assets that equal to two to six months of usual living expenses is an adequate amount for most people. Now, lenders want to see 6 to 12 months. What Is The Liquidity Ratio That Banks Use? The Basic Liquidity Ratio is: Liquid Assets/Monthly Expenses. Another ratio is Liquid Assets + Other Financial Assets/Monthly Expenses. Most lenders now are looking for at least a six-month period. (12 months by “smarter” banks). Example: If the applicant shows $12,000 in cash equivalent assets, and monthly expenses of $4,000, the liquidity ratio is 3.0. Believe it or not, there are banks out there now that want to see a liquidity ratio of 12, or enough to cash in to maintain a similar life style for 12 months. National and regional lenders look for this. Summary: To capture a loan, the applicant hopefully has a credit score of 740 or higher, relative management experience, a rock-solid business plan and cash flow projections with assumptions. (That is where George helps for a minor fee). Lenders must see a satisfactory liquidity ratio. Thank you for enjoying my mailings, and it would be my pleasure to add others that you suggest to my mailing list. Free SBA pre-qualify evaluations, and free consultations to buyers. No points. Reminder: Use my famous “Best to Worst” loans directory. If you have not received a copy, please request one. Disclaimer: This information bulletin was sent based on an e-mail request, or your office listing on your company web site, or based on previous contacts with me, or from a business associate recommending that I add you to my mailing list. The information contained in this e-mail may constitute legally privileged information. If you are not the intended recipient, you are hereby notified that any dissemination, distribution, copying of, or taking of any action in reliance of this e-mail is strictly prohibited. If you have received this e-mail communication in error, please notify George immediately with a response, “DELETE.” If you have received this message via transfer from an old e-mail address to your new one, and want to be deleted, please advise of the old e-mail address