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How does SBA financing work?  First of all, it is very similar to regular commercial bank financing.  In fact, one of the biggest misperceptions out there is that the SBA finances transactions themselves.  This is not the case.  Loans are financed by banks and the SBA guarantees the bank in case the borrower defaults. 

So essentially, the SBA is just making a promise that they will reimburse the bank if the borrower fails.  It’s basically an insurance program for the bank.  Because of this guarantee, banks will make loans to borrowers that they would not consider, by a long shot, if they did not have the guarantee.  Aggressive features of SBA finance include 90% financing… (Most banks won’t go beyond 60% now a days), considering goodwill of businesses as collateral, financing start ups, etc. 

Because the SBA basically just guarantees the bank, borrower should remember that being declined by one bank does not mean that there transaction isn’t doable via the SBA programs.  Within SBA financing, there is a wide degree of what one bank to another will consider credit worthy.  It is also critical to remember that banks have their own problems.  You may have a solid loan request and the bank may decline it because they have exceeded their capital reserve limits or have low liquidity, etc. 

If you are declined it is best to find out exactly why, so that you can be better prepared to deal with it with the next bank, broker or lender. 

How To Apply For SBA Financing

In general you should first do phone interviews, than send in required documentations.  On the phone interview you want to discuss the overall transaction, including its strengths and weaknesses.  If there are major issues with the request you should mention them, in a positive light, and see if they might have a solution to it.  Don’t bother trying to leave anything hidden, as the underwriters will discover it later. 

Also, try to determine their level of activity, i.e. are they really funding loans?  Many banks are still taking loan requests yet aren’t funding loans.  Why?  There’s a variety of reasons, like lack of communication from upper management to loan officers, denial, trying to not lose face in the market place, etc.  But it’s your money and time that is on the line, so you need to figure this out.  One way to do this is get third party referrals from other business owners, your CPA’s, attorney or of course seasoned commercial mortgage brokers. 

Assuming you think the bank is active, and that they like your loan request you will need to get to work and provide the necessary paper work.  This is extensive and time consuming, though there is no way around it.  You fill out the forms and provide the needed documentation or you go nowhere. 

After the bank receives the package from you they normally will issue you a term sheet within 5 days or so which spells out the proposed loan.  At this point your deep into the process and need to make a decision to go with that bank or not.

SBA financing is still viable… they continue to close as the rest of the commercial mortgage market falls apart.  Business owners that need to buy commercial real estate or refinance their property should give SBA financing serious consideration. 

Jeff Rauth is President of Commercial Finance Advisors, Inc. They close SBA and other commercial real estate loans between $400,000 – $5,000,000 nationwide. Reach him at 248 885-8797 or at SBA 7a Loans or SBA Business Loan or SBA Lenders

Article Source:http://www.articlesbase.com/mortgage-articles/how-sba-financing-works-1428729.html

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How do you apply for an SBA loan?  It’s recommended that you do a phone interview first, than assuming you think there is a fit, provide the required information to the SBA bank or lender.

As far as the interview, you want to accomplish a copy of things.  Number one is to be completely upfront and honest with the loan officer.  Tell them the strengths of the request and it’s weaknesses.  Do not try to cover anything up that you may perceive as a weakness, as the underwriters will find out. Underwrites are basically professional detectives and will scrutinize every detail of the file.  If there are issues, you should try to determine if they can figure out a solution now, before you put months into the process only to get a decline. 

Some examples of common issues include, declining business trends, credit score issues, high loan to value, low liquidity, start ups or “young businesses” (less than two years), etc.  This is not to say you should be passive.  You should have arguments thought out and prepared.  For example, say your last tax returns shows that your gross sales declined by 10% compared to the previous years.  You should say something like “our gross declined in 2008 however, are year to date is back on track.  We believe we have turned the situation around.  This is due to our new marketing plans and an increase focus on …” 

You should have other strengths to point out where applicable, “in addition, despite the declining trends we feel the cash position of our business and our relatively low loan to value, should help you get over these issues.”  The banker on the phone will be impressed and will more likely be willing to work will you.

Also, try to figure out what the proposed terms would be, assuming the bank thinks you are credit worthy.  They should be able to give you an idea of the loan to value restraints, approximate interest rate and amortization schedules.  Most SBA bankers will hesitant to give you any hard quotes or specifics until they have a real comprehensive understanding of the loan but, they should be able to give you an idea.  If you feel you can do a lot better, than move on. 

Apply For an SBA Loan

When you believe you have found and decent match you will now have to roll up your sleeves, and provide the required documentation.  The list is thorough and comprehensive.  Keep in mind there is no getting out of this.  You play ball, or have no chance of getting a loan.  At a minimum you have to provide, resumes, 3 years of business tax returns, 3 years of personal tax returns, personal financial statements, and year to date profit & loss and balance sheet. 

They will be other required items, but the banker can at least give you a real quote and or a term sheet which will spell out the terms of the proposed loan after they review these items. 

Jeff Rauth is President of Commercial Finance Advisors, Inc. They close SBA and other commercial real estate loans between $400,000 – $5,000,000. Reach him at 248 885-8797 or at SBA 7a Loans or SBA Business Loan or SBA Lenders

Article Source:http://www.articlesbase.com/mortgage-articles/apply-for-an-sba-loan-1425179.html

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