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Ask an outside consultant

  • October 5, 2008 - 9:57 PM

Q In today's economic times, do you predict that it will be hard for an entrepreneur to get a Small Business Administration (SBA) loan? If so, what tips or recommendations may help to get over some of the hurdles to securing financing?

BRIAN

A It is difficult to get any loan today. An "SBA loan" is not a loan from the SBA, but rather a bank loan that the SBA has provided with a partial guaranty in case the borrower defaults.

Many entrepreneurs do not have a long enough operating history to meet traditional lending requirements. The guaranty permits the bank to extend credit to promising young companies in the hope that the business will grow, hire employees and, of course, pay taxes.

The primary lending criterion is whether the business has the ability to repay the loan. If the business has financial results demonstrating the ability to repay, it should be in excellent shape to get a loan.

New businesses that lack financial results will need to develop carefully documented and researched cash-flow projections estimating the ability to repay the loan. This is a much tougher sell, and chances for getting the loan will depend on how much of an entrepreneur's own money can be put into the deal and how much other collateral the entrepreneur is able to supply.

One last note with respect to bankers: They make a living by lending money, and they want to lend as much as possible, but they need to be paid back. If they are refusing to lend to a business, they are telling that business to reexamine its prospects before taking the plunge.

MIKE RYAN, DIRECTOR, TWIN CITIES SMALL BUSINESS DEVELOPMENT CENTER UNIVERSITY OF ST. THOMAS OPUS COLLEGE OF BUSINESS

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