The SBA rules and regulations can seem intimidating and can be complicated to comply with.
Working with a company such as BFG greatly affects your ability to succeed in securing financing.
Qualifying for a loan is built on the banking concept of the 4 C’s: Capacity, Capital, Collateral, and Character.
To put it in simple words, your perspective lender wants to know:
For SBA loans, anyone who owns more than 20% of the business has to sign a personal guarantee, and the lender wants to know how they have handled debt in the past.
Desired credit scores above 700.
Lenders consider more than just your score, what is affecting the score is equally important.
For example, one factor that affects your credit is high utilization, which is not necessarily a bad thing, especially when compared to another factor, like late payments, which is worse.
Note that different lenders use different scoring models that might differ from the score you see when you check your own credit.
BFG knows which scoring models our different lenders use and has the ability to check yours over the phone within minutes.
They also look at your credit history and the absence of past issues, such as bankruptcies, liens, judgments, prior defaults, and so forth.
Lenders do what is called a global cash flow, which considers the money that your business makes, income from other sources, existing debt, and the owners’ personal expenses.
How much you qualify for is driven by last year’s filed tax returns; the most important number on your financials that affects how much you qualify for is the taxable income or net income.
They also consider your interim P&L and balance sheet to ensure that the business is on track to make as much money as the previous year or more.
A simple example:
Company with one owner
| Combine | ||
| Last year taxable income | $ 200,000 | |
| Owner salary | $ 100,000 | |
| Depreciation | $ 15,000 | |
| Interest | $ 10,000 | |
| = | $ 325,000 | |
| Subtract | ||
| Personal expenses | $ 80,000 | * Mainly driven by your credit report |
| Personal tax liability | $ 75,000 | * Assuming 25% rate on household income 300k |
| Yearly company debt payments | $ 45,000 | |
| = | $ 200,000 | |
| Cash Flow | $ 125,000 |
Based on the above example, you would have 125k a year to pay for any new debt.
Lenders are looking for a cash flow ratio of 1.25.
For an SBA 7a working capital loan, you need roughly $20k of available cash flow per 100k you wish to borrow.
Going back to the above example, such a client could get approximately $600,000 as a working capital loan.
For an SBA 7a WC loan of 600k, paid back over 10 years with an interest rate of prime + 2.75 (prime, as of Oct 18th, 2024, is 8%, so your rate would be 10.75%) will cost you $8,180.32 a month or $98,163.84 a year.
SBA loans are a government-backed program, and the government likes their paperwork – but working with BFG we will make the process as smooth as possible!
To get pre-qualified with one of our experts, you’ll need to share:
Once you’ve spoken to one of our experts and shared the above documents, they will be able to tell you how much money you’ll qualify for with significant certainty within 1-3 business days.
BFG has a success rate of above 90%!
So, how do we measure “success”?
As long as everything else stays the same and there are no surprises along the way – Were we able to provide you with a term sheet with the terms outlined during our pre-qualification?
Collateral/airballs – banks look at collateral you have available in case the loan fails. The more collateral, the easier it is for a bank to make the loan. If you don’t have any collateral, you can still get a loan, but it might be smaller. Each bank has an airball max; that is, they will limit the amount of the loan not covered by collateral
Industry banks also look at the industry that you are in and the historical failure rates for loans in that industry. If you are in a high-risk industry, they will be looking for more collateral to do alone.
All the rates and fees are regulated by the federal government, and we and all our banks follow all of them.
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