Using SBA loans for buildout loans, are you a good fit?

By Matthew McElveen

As a potential or current business owner, the thought of where you will be operating your business is at the forefront of your mind. We have all heard the phrase, “location, location, location.” Even before you have identified the potential location, however, there are several things all business owners need to consider in hopes of securing their dream place. Who knows, these things could even help you land a more competitive rent rate and who doesn’t want that, right? The things you’ll need to consider mentioned above are also the items that SBA lenders will be looking at when determining the ability to lend you money. Outlined below are these items in further detail.

Business Plan: You should always approach a landlord with a detailed business plan. If you cannot put on paper how you expect to operate your business in order to meet your rent and loan payment, the landlord isn’t going to be inclined to lease their space to you. Your business plan should include an executive summary of your business, along with a S.W.O.T. (Strength, Weakness, Opportunity, and Threat) analysis. Including a breakdown of your target market and demographics of the area you will be serving will go a long way for a potential landlord and lender as well.

Within the business plan, providing a breakdown of potential project cost that you will need financing for will let the landlord know you have done your homework; and it will also be very easy for a lender to locate your immediate lending needs.

Financial Projections and Assumptions: Detailed financial projections are necessary for all SBA lenders. The first 12 months of your projections must be broken down month by month to allow your lender to determine if there is any seasonality with your business. As you complete the projections, writing a short summary of how you calculated the projections is very helpful as well. 

Other Information: When seeking SBA financing for your new location, it would be very beneficial to already have the following personal documentation readily available:

  • Most recent 3 years of personal tax returns
  • Personal Financial Statement – SBA Template Attached• Resume
  • Copy of Driver’s License

In seeking financing for your new location many tenants are not aware of the benefits that SBA lending has to offer. To quickly outline some of the main benefits of SBA financing please see below:

  • Maximize Cashflow – To increase cashflow and lower debt payment, SBA offers longer terms than most banks conventionally will (normally 10 years for leasehold buildout).
  • Minimum Equity Requirement – Depending on your financing needs, your SBA lender could require as little as 10% equity injection (down payment) for your loan.
  • No Loan Covenants – SBA loans do not have loan covenants. Loan covenants can require you as a borrower to maintain a certain debt coverage ratio, or the lender could call your note. 
  • Safety Nets – Your SBA lender is required to work with you as a borrower through difficult times and can defer your principle and interest payments for up to a year (in 3-month increments)! The SBA also assist borrowers through any natural disasters (ex. The 2007 flood in Nashville).
  • Personal Guarantee – The bank will require that any owner above 20% personally guarantee the loan.I hope this article has been helpful to all that are in the beginning stages of finding the perfect location for their business. If you have any questions regarding any financing need, feel free to give me a call for a complimentary consultation.

Matthew McElveen | VP, Business Development Officer GGL1201 Demonbreun St., Suite 700 | Nashville, TN 37203 
tel: 615-732-7368 | cell: 615-440-7033