SBA Hero Do's and Don'ts: Essential Tips for SBA, 7(a) Loans, and 504 Loans Success

Do's and Don'ts of an SBA Borrower

An SBA HERO Business Plan can help you reach your goal and may help you exceed your expectations. One thing you need to be sure of is to educate yourself, ask questions and keep an open mind. This is a big step and is important for your livelihood. This business plan is going to be a vehicle that helps you get into business and keeps you getting out of bed for the next 10 to 25 years. I consider buying a business an important life event like graduating from school, getting married or the birth of a child. So knowing what you are doing is going to make this a much less stressful event. So here is my list of Do's and Don'ts

Do's

Do work with a commercial real estate attorney, commercial title agent, commercial leasing agent or commercial real estate broker. The recurring word is “commercial” If you went to the hospital for heart surgery don't go to a brain surgeon. There are no shortage of stories about clients working with a friend from church, neighbor or family member who may have good intentions but no real knowledge of how to get things done. These people will also make your seasoned commercial banker crazy. Many of the real estate industry professionals are on partial or depend on commission only for their income. Some will see an opportunity to get a pay day even if they are out of their professional expertise in the real estate, legal or financial profession.
Do some house real house cleaning. Sounds weird I know but an unorganized home and clutter can throw off your mental flow and overall well being. Once your home is in order the stress of buying a business and applying for the SBA loan will be much more manageable. Your decision making will be clearer. Remember you are about to step in many times a world of terminology and professionals that you are not used to interacting with. You will also have less time to do the things you enjoy doing because of the time commitment of the process.
Do know your credit score. If you have any credit issues be prepared to answer those questions and understand what you need to do to raise your score and do it if necessary prior to applying for an SBA loan. Most lenders have a minimum FICO score. You might ask your lender so you know where you stand. The idea behind the FICO score is to establish a universal consumer risk rating. It was created in 1956 by Bill Fair and Earl Isaac. So F stands for Fair and I stands for Isaac and CO for company. The scores typically run from 300 to 850. There are 3 companies that report and score consumers Transunion, Experian and Equifax.
Do spend some time organizing your personal information needed when applying for an SBA loan. Make sure you have your complete personal and existing business (if applicable) tax returns electronically for the last three years. If you are late on filing your tax returns make sure you have the extension available to provide to the lender. It is highly recommended that you have your taxes filed. Are you set up with online banking so you can access and update your bank statements when needed for the lender. You should go ahead and get your company filed with the state. Have your entity documents prepared. For example Articles of Incorporation, Articles of Organization, By-Laws, Operating Agreement or Assumed Business Name. If you had a bankruptcy or divorce decree, have a certified filed copy. Some lenders may want a copy of your Social Security Card. Get a copy of the lender's application. Print out a copy for a rough draft and review what kind of information is needed. Make sure your have a valid driver's license or state ID. I had a client get all the way to closing and the title agent noticed the driver's license was expired. The agent was not willing to move forward without a valid ID. Luckily my client was able to go home and bring back a valid passport that was accepted.
Do get started on a business plan with two years of projections. This is intimidating. Ask for help from a professional business plan company like SBA Hero, LLC that can work with you. We will have typically seen your type of business that you will be requesting a business plan to be written for and will make suggestions and know the questions to ask to best guide you through the business plan process.

Don'ts

Don't rule out others' opinions. Professionals who have been doing this for as long as I have can be a wealth of knowledge. Simply reading information about the SBA Program is not anywhere close to the value add that an experienced Business Development Officer (BDO) will provide. More importantly the SBA sets guidelines or Standard Operating Procedures (SOP's) that lenders need to adhere to in order to keep their SBA Guarantee in place. That does not always mean that the lender will be as liberal as the SBA SOP's or that they participate in all of the programs that are available through the SBA. Every lender out there has their own credit box that is unique. So you will need to interview your SBA specialist that you find at various lending institutions.
Don't procrastinate when being asked to provide information by your lender. Documentation is time sensitive and will expire. This could cost you money and time that you cannot afford. Rates could go up that affect your monthly payment or professional expenses could go up due to updating needed documentation required to close the loan within a time frame. Escrow money could be in jeopardy. These are just a few concerns that come to mind.
Don't become frustrated with the process. Control the movement of your SBA loan request. Keep in mind that your BDO or Banker is motivated to close as soon as possible. Not only is there a commission involved for this type of salesperson but the lender is also under pressure to hit production numbers. That does not mean that there will not be things that come up that slow the process down. Lending Staff can go out sick, your BDO could take vacation or could move to another lender, holidays could come up, lender guidelines could change, the decision maker that approved your loan could be replaced and a government shutdown could freeze the SBA program.
Don't back yourself into a corner that is hard or even costly to get out of when time is a concern. Make sure you give yourself plenty of time when considering your Purchase Sale Agreement (PSA). You should have a due diligence period of 30 to 60 days depending on the business. You should also have 30 to 60 days for funding. As an additional safety net you should have an option for an additional 30 days if the lender is not ready to fund on your loan request. This in my experience has been plenty of time. Some issues that could cause even further delays are environmental concerns or other third party reports that the bank depends on that does not come back favorably.
Don't go on vacation in the middle of the process and think everything is going to be just fine. Murphy's law is hard at work and is real. It is an adage that is typically stated as “Anything that can go wrong will go wrong”. Take your vacation before you start that process you will need to stay fully engaged throughout the submission, anticipated approval and funding. Remember if anything simply cannot go wrong, it will anyway.