SBA Loan Guarantee – Rent/Lease Business Location

Dear M & M:

How do I apply for a SBA Loan Guarantee and how does an SBA Loan Guarantee work?

-Amelia

Dear Amelia:

SBA has three different loan programs. Each of the programs is designed to cover a variety of business, needs, thus providing the most options to small businesses. (More on SBA’s Loan Programs at: http://www.sba.gov/financing/sbaloan/snapshot.html ) As the programs are delivered by SBA’s partners and are not direct loans from SBA, businesses should consult their District offices or contact the lending partners (banks) in their area before filling out any applications. Contact a local lender and discuss your loan proposal with one of their loan officers. Be prepared to discuss your proposal in detail with the lender. You should have the following available for the lenders review: your business plan; your personal financial statements; your business financial statements (if already a business); collateral available to secure the loan; assumptions used in your projected earnings statements; management resumes of those involved in operating the business; and pro-forma balance sheets showing what the business would look like if the loan were granted. Under the guaranty concept, commercial lenders make and administer the loans. The business applies to a lender for their financing. The lender decides if they will make the loan internally or if the application has some weaknesses which, in their opinion, will require an SBA guaranty if the loan is to be made. The guaranty that SBA provides is only available to the lender. It assures the lender that in the event the borrower does not repay their obligation and a payment default occurs, the Government will reimburse the lender for its loss, up to the percentage of SBA’s guaranty. Under this program, the borrower remains obligated for the full amount due.

–SBA

Dear M & M:

Will a lender be concerned if I lease and not own the location I operate my business out of?

–Nancy

Dear Nancy:

Yes, your lender will look at the following items if you lease.

Length of the lease: The lender will want the term of the lease to be the same as the loan or extendable to the maturity date of the note.

Monthly payments: Your cash flow statements should reflect the projected cash flow analysis. If your rent is going to increase it should be reflected.

Responsibilities: Who pays taxes, insurance, maintenance and other expenses? How is the base rent established? You usually pay a quoted; “per square foot” which is the amount paid on a yearly basis for one square foot. Multiply this, “per square foot” amount by the number of square feet you are leasing. Then divide by 12 to get your monthly payment.

Other:  What is your security deposit? How do you get it back when the lease is terminated? Is the lease transferable? What will it cost you of you terminate the lease early? What is the, “use clause” in the lease (what services or products you are permitted sell out of the premise)? Many businesses do not own the building they operate out of. Just because you lease, you will not be turned down for a loan. The lender wants to make sure the cost of the lease is affordable, you will be able to operate out of the location you are in during the terms of the loan, and what happens if you cannot fulfill you lease obligations while you are still paying on the debt owed to the lender.

-M&M

To ask your questions: Call the Small Business Development Center(SBDC) at Cochise College (520)-515-5478 or email schmittm@cochise.edu or contact the Sierra Vista Economic Development Foundation(EDF) at 520-458-6948 or email  hollism@svedf.org

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