Supercharging Your Business with the SBA Loan Program
Mike “Sparky” Detmer ([email protected]) is president of Niles Audio
Like so many custom integrators, Ralph’s business slowed dramatically during the economic downturn. To keep things running, he made all the necessary adjustments by cutting back expenses, shifting sales tactics, and ultimately weathering the storm. In a recent conversation, Ralph told me, “Our money customers are beginning to spend! I’ve got more jobs in the pipeline, and my business is beginning to grow again.”
While Ralph is elated with the prospect of growing his business, he has to navigate an unexpected consequence when doing so. In the old days when there was a constant stream of jobs, Ralph’s business needs and cash flow were in sync. But now with fewer financial resources, it is a challenge to handle all the new jobs because his cash-on-hand is limiting the up-front expenses associated with funding multiple jobs that will come due at the same time. In accountant terms, Ralph has a healthy P&L but a weak balance sheet.
If you find that your company has a healthy P&L but a weak balance sheet, then consider a cash infusion through the SBA Loan Program.
If you find yourself in the same position or are planning to increase advertising, add a new vehicle, or consolidate purchases among fewer vendors to realize higher discounts, the best way is with a cash infusion. And one of the best places to get cash in this tight economy is through the SBA Loan Program. That’s what Ralph is doing and here are a few tips he’s offered up to help you with the process:
1 Understand that the SBA is a government organization that offers a variety of loan packages that are available through local banks and credit unions. To learn, more you should visit its website.
2 Think about the terms of the loan, e.g., how long you want to take to pay it back and what interest rate you will pay. Ralph is opting for a 10-year loan, and because he is still in the loan process the SBA, has not confirmed the interest rate. It will be somewhere between 3 and 9 percent based on what risk the SBA assigns. There is no way to determine the exact interest rate without going through the loan application process. While I’m not qualified to give you financial advice, your accountant might likely advise you that a loan at a 3-percent rate for 10 years is a good bet. Undoubtedly, inflation will set in, and you’ll be paying back today’s dollars with inflated ones, getting more for your money.
3 Be prepared for a 60- to 90-day loan process with lots of paperwork. Have your financial statements in order. In fact, you may want your accountant to prepare a package for the SBA. While this adds to the accountant’s fee, it will expedite the loan process.
4 Ask for more than you need, because you will likely need more than you think. Have a business plan prepared to justify your loan request and show SBA officials how you expect to grow your business. Ralph had to provide records showing his top 10 customers over the past few years and his historical sales trends.
5 Don’t take a loan that you can’t pay back. You will have to sign a personal guarantee for the loan amount. So be sure that your plans are plausible and that you are committed to your business because your personal property will be on the line.
Google tells me the Roman philosopher Seneca coined the phrase “Luck is what happens when preparation meets opportunity.” With that in mind, if your business is on the brink of expansion and you lack the funds to make it happen, the day you talk to the SBA might just be your lucky day.