When applying for an unsecured SBA small business loan, there are certain things bankers like to see. For example, for the Community Express loans, the paperwork is quite abbreviated and you are only asked what kind of business, length of time in business, industry experience, credit, and gross income. But what other factors will they consider?
To answer this, you have to delve into the mind of a banker. One of their fears is that the money will “go down a whole”, be gone, and not be used to productive use. As a result, there will not be enough increased income to support the loan payments. There even fears from some bankers that the money will be used for personal purposes.
Some lenders go so far as to require the loan be used for tangible property, such as actual inventory, equipment, machinery, tools, raw materials, advertising, and the like. Others have a broader definition of entitlement, and will allow it for customary cash flow needs, such as rent, utilities, payroll, insurance, and supplies.
But for all bankers, it is an absolute “turn-on” for them to have an itemization of exactly what it is going to be used for, in general and not specific language. So most successful applications I have seen have had a specific itemization of the material or equipment to be used, listed as a schedule, including make, model, and pricing. It shows that you have done the requisite research and gives a measure of confidence to lender.
Poor Examples
1. “To be used for basic cash flow needs of the business in order to expand and increase income. We are at a position where one of our competitors and has closed shop and we can reap the benefits of this situation. We know we will have been increased income to easily pay-off the debt service of the loan.”
2. “We have reached capacity in our dining room and plan to add on to some available kitchen space. This will allow us to increase the menu and volume for our lunch and dinner trade.”
3. “In our printing business, we would like to buy two more industrial color copiers to go in each of our retail stores. This will enable us to capture more of the market so that our customers do not turn their business to some of the competitors in town.”
Good examples
4. “We will be expanding the capacity of our restaurant. In researching the availability of the equipment, we went to six commercial supply houses and chose Acme Restaurant Supply with reconditioned items covering a one year warranty, as follows:
A. Wolf reconditioned oven model 602 at $2,555.
B. Acme walk-in cooler, 6ft. by 20ft., with a ten HP cooling unit, at the reconditioned price of $5,323.
C. Portable Acme cooler model X850e for they reconditioned price of $650.
D. Etc.
In doing so, it is a good idea to have attached inventory list with pricing. Even better, would be an actual written quote from the supplier. In doing so, the banker can readily figure out that this will result in increased income and a better chance of repaying the loan.