SBA Financing: 3 Tips to Find The Right Lender

Deb Curtis, a Wisconsin-based small business financing consultant, has one analogy she likes to use to capture the number of lending options available to entrepreneurs looking to finance a small business purchase: a sea. This turns out to be an apt analogy because the sea is also an intimidating and even hazardous place if you aren’t with a strong swimmer. You have to make the right moves. 

Deb has spent decades navigating this so-called sea of lenders. She’s worked with small, medium, and large lenders, including big banks, regional banks and community lenders. “All of them have different thresholds and credit appetites,” she explained. 

By way of example, she pointed to restaurants, a risky but potentially lucrative business venture. She said that if you call a big bank, they may say they require 50% down on a restaurant acquisition. A community bank may just flat out tell you “no, we don’t finance restaurant acquisitions.” A regional bank may say they require 30% down, and if you call a non-bank lender, they may only require 10%. 

And this is before you even begin to take into consideration a host of other factors that the professionals underwriting the loan will have to evaluate: the historical cash flow of the business, your personal credit and savings, collateral, etc. To add an additional layer of variability, Deb said these thresholds can change virtually overnight as the industry or economic realities shift. “Hotel and restaurant financing during COVID, boom, shut,” she said

Deb spoke at the 2023 #BossUp conference about SBA loans, in particular. This is a program offered by the U.S. Small Business Administration that shoulders part of the risks that lenders take on in order to increase access to financing for small businesses (the Canada Small Business Program serves a similar function). 

But this program also has somewhat specialized requirements. Deb specializes in helping applicants access this financing. Here are a few of her key insights.

Your Credit Score Is Just The Start

Having a bad credit score can disqualify you for a loan, but as Deb explained, having a good credit score doesn’t necessarily mean you’re going to get that loan. She refers to the “Five C’s” which, in addition to credit score, include:

• Character
• Capacity
• Capital
• Collateral

Even if you have a good credit score, if you are maxing our your credit capacity, drawing down your personal savings, and have little to offer in terms of a personal stake or down payment, that is going to reflect poorly on you (your character). Once you’ve confirmed that your credit is in good standing, you’ll want to work on these other “C’s” to ensure your application seems as appealing as possible to the lender. That may include selling assets to boost your personal savings or pay down debt or including your partner’s income on your application (which is required for SBA loans).

Tailor Your Resume

Deb encourages you to think of an SBA loan application the way you would a job application — you want to adjust your resume to ensure the most relevant elements of your work experience are highlighted. Deb gave a personal example: if she wanted to apply for a loan to purchase a restaurant, her current resume, which focuses on her experience and expertise as a financing consultant, isn’t going to get her that loan. Instead, she would have to adjust it to highlight the eight years she spent early in her career in a restaurant role, serving, helping manage staff and inventory, etc. 

You also want to be wary of any criminal history, not just on your part but of any key employees in the business (key professionals, license holders, etc.). Getting charged for pot possession 20 years ago or other similar offences may not be a big deal, Deb said, but a recent fraud conviction or something similar is a different story.

Beware of Broker Arrangements

Most business brokers work with one or a small number of recommended lenders and they get paid a percentage if you, the purchaser, choose that lender. Deb is compensated in a similar arrangement through the SBA, but as she explained there is a huge amount of variability in the types and offerings of SBA-approved lenders. You want to do your due diligence exploring the options, and that may include consulting with someone with experience swimming in the proverbial sea of lenders. 

Watch Deb’s full session from #BossUP 2023. 

Opinions expressed here by contributors are their own.

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