Financing & Solutions
SBA 7(a) PROGRAM
SBA 7(a) loans are the most basic and most used type loan of SBA’s business loan programs.
Its name comes from section 7(a) of the Small Business Act, which authorizes the Agency to provide business loans to American Small Businesses. In 1932 President Herbert Hoover founded a government guarantee program in response to the pressures of the Great Depression and World War II. A government guarantee was offered to lenders so they would have incentive to lend! The spirit of the original program, now the U.S. Small Business Administration (the SBA), remains in place: To alleviate the plight of businesses and to rebuild Main Street America.
All 7(a) loans are provided by lenders who are called participants because they participate with SBA in the 7(a) program. Not all lenders choose to participate, but most American banks do. There are also some non-bank lenders who participate with SBA in the 7(a) program which expands the availability of lenders making loans under SBA guidelines.
7(a) loans are only available on a guaranty basis. This means they are provided by lenders who choose to structure their own loans by SBA’s requirements and who apply and receive a guaranty from SBA on a portion of this loan. The SBA does not fully guaranty 7(a) loans. The lender and SBA share the risk that a borrower will not be able to repay the loan in full. The guaranty is a guaranty against payment default. It does not cover imprudent decisions by the lender or misrepresentation by the borrower.
Under the guaranty concept, commercial lenders make and administer the loans.
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 which 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.
All 7(a) loans which SBA guaranty must meet 7(a) criteria. The business gets a loan from its lender with a 7(a) structure and the lender gets an SBA guaranty on a portion or percentage of this loan. Hence the primary business loan assistance program available to small business from the SBA is called the 7(a) guaranty loan program.
A key concept of the 7(a) guaranty loan program is that the loan actually comes from a commercial lender, not the Government. If the lender is not willing to provide the loan, even if they may be able to get an SBA guaranty, the Agency cannot force the lender to change their mind. Neither can SBA make the loan by itself because the Agency does not have any money to lend. Therefore, it is paramount that all applicants positively approach the lender for a loan, and that they know the lenders criteria and requirements as well as those of the SBA. In order to obtain positive consideration for an SBA supported loan, the applicant must be both eligible and creditworthy.
What SBA Seeks in A Loan Application:
In order to get a 7(a) loan, the applicant must first be eligible. Repayment ability from the cash flow of the business is a primary consideration in the SBA loan decision process but good character, management capability, collateral, and owner’s equity contribution are also important considerations. All owners of 20 percent or more are required to personally guarantee SBA loans.
All applicants must be eligible to be considered for a 7(a) loan. The eligibility requirements are designed to be as broad as possible in order that this lending program can accommodate the most diverse variety of small business financing needs. All businesses that are considered for financing under SBA 7(a) loan program must: meet SBA size standards, be for-profit, not already have the internal resources (business or personal) to provide the financing, and be able to demonstrate repayment. Certain variations of SBA 7(a) loan program may also require additional eligibility criteria. Special purpose programs will identify those additional criteria.
Eligibility factors for all 7(a) loans include: size, type of business, use of proceeds, and the availability of funds from other sources.
SBA must determine if the principals of each applicant firm have historically shown the willingness and ability to pay their debts and whether they abided by the laws of their community. The Agency must know if there are any factors which impact on these issues. Therefore, a “Statement of Personal History” is obtained from each principal.
Other Aspects of the Basic 7(a) Loan Program:
In addition to credit and eligibility criteria, an applicant should be aware of the general types of terms and conditions they can expect if SBA is involved in the financial assistance. The specific terms of SBA loans are negotiated between an applicant and the participating financial institution, subject to the requirements of SBA.
401(k) & IRA Rollovers
There are many types of funding options available so you can fulfill your dream of owning your own business.
You have options other than the traditional forms of small business financing either using the SBA program or funding through a commercial program. The options include rolling over your IRA, 401(k), SEP, 403(b) or other retirement accounts into a business or franchise without…
Certified Business Plan
The executive level business plan is designed specifically to exceed lender underwriting guidelines, perfect for guaranteed SBA programs.
The business plan is about 25-30 pages in length, includes color charts and graphs and consists of the following components:
- Executive Outline and Financial Summary
- Company Structure and Shareholder Description
- Product and/or Services Descriptions
- Market and Industry Analysis and Research (completed by in-house Research Team)
- Marketing Plan with Key Objectives
- Full 3 Year Financial Projection (Pro Forma) Including: Sales Forecast- Profit Statements, Profit & Loss, Balance Sheet, Cash Flow, Balance Sheet, Break Even Analysis, Funding Requirements, and Use of Proceeds
A Business Plan is required for entrepreneurs seeking bank financing for a start-up business or for expanding an existing one (franchise or independent). The DCV Business Plan is designed around SBA underwriting guidelines and therefore we have never had a lender or SBA rejection of the document. We continue to make it our responsibility to be informed of current SBA rules and regulations the government requires of lenders. The Business Plan is written exactly to include government published guidelines. We are confident in the DCV Business Plan product and guarantee your Business Plan will never be rejected by a lender.
After completing a Business Plan Questionnaire with the Performance Manager, the results are compiled and reviewed in a group setting. Your Performance Manager will work directly with you in whatever capacity you are comfortable. Constant communication is the best; we encourage you to call anytime, with any question. Weekly Status Calls are arranged so that without a doubt, you are on calendar every single week for a telephone conversation. After we deliver a draft of the Business Plan you have contracted DCV to write, you may revise the Plan as much as necessary. The final stage in the process is that you have become entirely knowledgeable of the Business Plan and its financial model.
All DCV Business Plans are customized from the ground up, fitting the specific needs of the project. We hold your hand from start to finish. All of the writing, editing, research and the building of the financial model are produced by a project manager who works closely with you every step of the way. Templates are not used. Building the Business Plan includes fact finding and gathering of information from a variety of resources. If building a Plan for a franchise, we work directly with the franchisor in collecting as much information as possible. Often times even the colors and font cases of the franchise are used throughout a Plan. Every Business Plan is written keeping the bank underwriter in mind; we never assume the bank underwriter has heard of the business model before. It’s our job to write a Plan that compels the lender to invest in you and your business. Care is taken in writing the Plan; “Selling” your program to the lender is always the number-one priority. Several members of the DCV team have skills necessary to generate a quality Business Plan.
SBA 504 Program
The CDC/504 loan program is a long-term financing tool for economic development within a community. The 504 Program provides growing businesses with long-term, fixed-rate financing for major fixed assets, such as land and buildings. A Certified Development Company is a nonprofit corporation set up to contribute to the economic development of its community. CDCs work with the SBA and private-sector lenders to provide financing to small businesses. There are about 270 CDCs nationwide, with each covering a specific geographic area.
Typically, a 504 project includes a loan secured with a senior lien from a private-sector lender covering up to 50 percent of the project cost, a loan secured with a junior lien from the CDC (backed by a 100 percent SBA-guaranteed debenture) covering up to 40 percent of the cost, and a contribution of at least 10 percent equity from the small business being helped.
The maximum SBA debenture is $1,500,000 when meeting the job creation criteria or a community development goal. Generally, a business must create or retain one job for every $50,000 provided by the SBA except for “Small Manufacturers” which have a $100,000 job creation or retention goal (see below). The maximum SBA debenture is $2.0 million when meeting a public policy goal.
The public policy goals are as follows:
- Business district revitalization
- Expansion of exports
- Expansion of minority business development
- Rural development
- Increasing productivity and competitiveness
- Restructuring because of federally mandated standards or policies
- Changes necessitated by federal budget cutbacks
- Expansion of small business concerns owned and controlled by veterans (especially service-disabled veterans)
- Expansion of small business concerns owned and controlled by women
What funds may be used for:
Proceeds from 504 loans must be used for fixed asset projects such as: purchasing land and improvements, including existing buildings, grading, street improvements, utilities, parking lots and landscaping; construction of new facilities, or modernizing, renovating or converting existing facilities; or purchasing long-term machinery and equipment.
The 504 Program cannot be used for working capital or inventory, consolidating or repaying debt, or refinancing.
Terms, Interest rates and Fees:
Interest rates on 504 loans are pegged to an increment above the current market rate for five-year and 10-year U.S. Treasury issues. Maturities of 10 and 20 years are available. Fees total approximately three (3) percent of the debenture and may be financed with the loan.
Generally, the project assets being financed are used as collateral. Personal guaranties of the principal owners are also required.
To be eligible, the business must be operated for profit and fall within the size standards set by the SBA. Under the 504 Program, the business qualifies as small if it does not have a tangible net worth in excess of $7.5 million and does not have an average net income in excess of $2.5 million after taxes for the preceding two years. Loans cannot be made to businesses engaged in speculation or investment in rental real estate.
VETERAN ADVANTAGE PROGRAM
More than 14% of businesses in America are owned by Veterans and the SBA guarantees more than $1 billion annually in loans for vet-owned business.
Each year the SBA assists more than 100,000 vets, service-disable vets and Reserve Component members.
Entrepreneurship can be the key to owning your future. The U.S. Small Business Admin and its resource partners have that covered with everything from counseling and training to loans, contracting and disaster recovery.
Developed in June 2007, the Patriot Express SBA’s Patriot Express Initiative has new and enhanced programs and services for veterans and members of the military community wanting to establish or expand small businesses.
Eligible military community members include:
- Service-disabled vets
- Active-duty service member’s eligible for the military’s Transition Assistance Program
- Reservists and National Guard members
- Current spouses of any of the above
- The widowed spouse of a service member or veteran who died during service or of a service –connected disability
The new PE loan is offered by SBA’s network of participating lenders nationwide and features the fastest turnaround time for loan approvals. Loans are available up to $500k and qualify for the SBA’s maximum guaranty of up to 90% for loans of $150 or less and up to 75% for loans over $150 up to $500k. For loans in the range of $350k lenders are required to take all available collateral.
The PE loan can be used for most business purposes including start up, expansion, equipment purchases, working capital, inventory or business-occupied real-estate purchases.
PE loans feature SBA’s lowest interest rates for business loans, generally 2.25% to 4.75% over prime depending upon the size and maturity of the loan.
The U.S. Small Business Administration has announced the SBA’s Patriot Express Pilot Loan Initiative for veterans and members of the military community wanting to establish or expand small businesses.
There are two basic equipment leasing programs; one is for small-ticket leasing which is for equipment costs up to $30,000 and big-ticket leasing for $30,000 and up.
In addition to the raw equipment cost, “soft-costs” are also allowed to be included in the lease. Soft Costs include and are not limited to installation, training, the initial warranty extension and even shipping and tax!
In addition to the raw equipment cost, “soft-costs” are also allowed to be included in the lease. Soft Costs include and are not limited to installation, training, the initial warranty extension and even shipping and tax!
There are traditional “Lease to Own” lease types. These leases provide a combination of lower, fixed monthly payments with a guarantee to purchase the equipment at the termination of the lease for $1.00. The four types are called “$1 Buyout”, Capital Lease, Finance Lease or Bargain Purchase Lease. Typical lease terms are two to five years, usually somewhat less than the useful life of the equipment. Nearly always this term is longer than a normal loan period from a borrowing source, resulting in lower monthly payments.
Lease payments are often treated as fully deductible expenses. This may mean a more rapid write off to you. Because the lease tem is generally shorter than the depreciable life, payments can be expensed in a shorter duration. There is never a problem leasing used equipment, except computers and copiers.
You will find that leasing costs are far less than other methods of acquiring the equipment you need. Most importantly, with leasing you can get the equipment you need now without disturbing your Working Capital!
UNSECURED BUSINESS LINES OF CREDIT
This Unsecured Capital Program features applications for stated income, unsecured, revolving business lines of credit that can be used for any purpose the business owner deems necessary including expansion, bridging cash flow, marketing, paying off e The credit lines do not appear on your personal credit report and therefore are invisible during personal credit transactions such as a car loan or during the mortgage underwriting process. The lines are underwritten and qualified wholly on a borrower’s credit rating, state income and stated business information.
Funds are typically available within 10-20 days of the application.
Some business owners that have cashed out equity in their homes to start businesses are using the new Capital Program lines to outright pay off a second or home equity lines of credit “HELOC” and carry the debt on business lines where it belongs. This results in a dramatic increase in the personal FICO score and debt ratio since business debts are no longer reflected on personal credit.
In just a few short months, client businesses earn a perfect business credit rating (80 PAYDEX or better). Once this goal has been achieved, your business will be flooded with preapproved offers from a multitude of credit providers, for both cash and supply uses. Never again will you or your company have to be concerned with obtaining financing for future Working Capital!
There are no officially set minimums on Sales, Annual Income, or CEO FICO Score to become a client. However, experience has provided insight as to what most banks are looking for in applicants in order to grant them credit. It is of the utmost importance that you are truthful in your statements of business information as banks will be comparing it to the results of their own research and due diligence.
Any type of business is eligible for the Unsecured Capital Program.
Small business is America’s most powerful engine of opportunity and economic growth.
For millions of Americans, starting a business is the best opportunity to turn a dream into reality. However, barriers to opportunity still prevent some individuals from taking full advantage of the opportunity to own a small business. By expanding the ability for more Americans to realize their business ownership dreams, the foundation of the economy will be further diversified and strengthened. The SBA seeks to foster an environment where small businesses can overcome barriers to economic opportunity in all areas of business development, including government contracting. This assistance will provide greater economic opportunity that will further contribute to the growth of the American economy.
SBA strives to reach those sectors of the population currently underserved by its programs, including ethnic populations, women, veterans, and both urban and rural businesses. The following resources offer opportunities and assistance.
The Office of Women’s Business Ownership (OWBO) exists to establish and oversee a network of Women’s Business Centers (WBC) throughout the United States and its territories. Through the management and technical assistance provided by the WBC, entrepreneurs, especially women who are economically or socially disadvantaged, are offered comprehensive training and counseling on a vast array of topics in many languages to help them start and grow their own businesses.
Working capital is used by lenders to help gauge the ability for a company to weather difficult financial periods.
Working capital is calculated by subtracting current liabilities from current assets. Due to differences in businesses and the fact that working capital is not a ratio but an absolute amount, it is difficult to predict what the ideal amount of working capital would be for your business. To calculate working capital requirements this calculator uses the “Current Ratio” to determine a target amount of working capital.
Many buyers overlook this and wind up in trouble soon after they acquire a business. What you are trying to determine is known as the “working capital” requirements of the business. This is the amount of money you will need available to fund the business after you take over until it becomes self-sufficient, meaning that there is enough inflow of cash to pay the bills.
Unfortunately, there isn’t a standard answer, but it is something that you can easily calculate. Keep in mind that every business scenario is different. For example, if you acquire a business where clients pay immediately (i.e. a retail store), then you will have an inflow of cash the first day that you take over. On the other hand, if it’s a business where you grant payment terms to clients and the average time to collect is 30 days, then at a bare minimum, you will need at least one month of working capital (although I don’t think that 30 day’s worth is enough, but I’ll explain in a moment).
The other thing to consider is inventory. If you will have to purchase products to sell prior to seeing payments form clients, here too your cash flow will be affected.
The best way to approach this for any business is to do a forecast for the first six months after closing. Generally, you should take the average monthly revenue for the past 2 – 3 years. Then, factor in any seasonality to the business. For example, if you are buying a water sports equipment rental business on the beach in Florida in May, you can certainly expect sales to be far lower than they will be in December.
Once you determine the average sales, then you must calculate all of the fixed costs that you will incur from day one. These are all of the expenses that the business will have that are not related to the sales. For example, if you have sales people on commission, their costs are only incurred when revenue is generated. On the other hand, rent is a fixed expense. You have to pay this regardless of what the business revenues may be. Other fixed costs include: utilities, payroll, insurance, taxes, etc.
Always add a cushion of at least 10% – 15% to cover miscellaneous costs that always arise for new business owners. Let’s assume that the fixed costs are $5,000 per month. Add another $750 to be comfortable.
Once again be certain that you include any anticipated inventory purchases into the equation if applicable to the business you are buying.
Then, you will need to factor in the revenue and how it is collected. If you sell products and don’t collect for 30 days, you know that you will be in the hole for at least the first month’s fixed expenses and catch up in month two. However, I have found that most businesses show a slight decline after a new owner takes over for the first 90 days or so. Each business is different but figure on about 15% – 20% decline.
In summary, here’s what to consider:
- Complete a forecasted profit and loss statement.
- Be ultra-conservative in both revenues and expenses.
- Discount prior year’s revenues.
- Increase fixed costs to give yourself a cushion.
- Don’t forget about inventory.
- Don’t panic if the business declines a bit after you take over.
- Do not allow yourself to get into a cash crunch.
- If possible, try to have three months of working capital available.
HOSPITALITY REAL ESTATE
There are a vast range of services we offer to owners and management companies of hotels in the limited service, upper-upscale, resort segments and all those in-between.
We have associations from a personal collection of over 16,500 contacts in our data base used for providing the best resources, competitive offers and the most economical sensible decision. Following is only a summary of advisory and management support services offered.
Accounting Set Up / Review:
Submit valuable expertise in measuring the efficiency of the accounting systems, checks and balances, policies & procedures, inventory controls, accounts payable, receivable and all things accounting and control related within a hotel. Develop a budget for ownership and management to follow. If just starting in the business, literally set up the accounting department from absolutely nothing to a fully operational account department. Provide in-depth review analysis and propose necessary entries.
Setup the books for the business. Reconciling the balance sheet, including bank reconciliation’s, City Ledger, Guest Ledger, and fixed asset schedules. We bring integrity to the business through the efficiency of providing a pure and organized balance sheet.
Hotel acquisitions and taking over property due to receivership, new purchase or ground up. Establishing policies and procedures, personnel files, human resource related issues, manuals and guides. Feasibility and ROI analysis to assist in making the “right” decision. Provide and guide ownership through the necessary due diligence, closing and post-closing processes in buying or selling a hotel.
Work side by side with the investor through the process of financing selection. Negotiate on behalf of the owner in the effort to achieve the appropriate financing package. Reliable resources include money resources from certified and preferred SBA lenders, conventional lenders, mezzanine and venture capital.
Determine the current standards and apply the necessary changes that are going to make the business successful. As simple as how the desk should answer the phone to how the room attendant should enter, or not enter, a guest room. The way employees are to talk and look at a guest. Analyze the entrance of the hotel; arrangement of the furniture.
Providing the analysis of the hotel’s segment, the competitive set and understanding the core business required in order to make the hotel successful. Developing a Business Plan and Growth Strategy for the hotel owner and management to follow in order to be successful.
Suggest the selection for the right flag. Negotiating with franchise organizations on behalf of ownership to ensure the integrity of the UFOC contract.
Provide site analysis and accurate implementation of technology for all revenue and expense centers within the operation. Including and not limited to systems for reservations, FF&E and renovation, accounting, inventory and appropriate guest interfaces, etc.
CORPORATION & FBNS FORMATION
At DCV Franchise Group our firm provides a process of promoting our clients to a platform of financial safety and growth for the future.
We provide a service that guides entrepreneurs through the process of securing the necessary funding to start their own business or expand their current business enterprise. DCV is not tied to any one particular funding option or lender. Our goal is to provide candidates with financial safety by using the least amount of their personal liquidity and personal collateral.
With DCV as your advocate we guide your project through funding. We save you time, energy, and promote opportunity. We take out the mystery and turn process into progress. Small business financing requires a complex blend of skills and relationships. Our decades of business experience give you the advantage! Obtaining financing can be one of the single most difficult tasks in the journey. We are here to fit all the puzzle pieces together. Direct Connect Ventures is the single source for all funding needs required in a Start-Up Business or for an Existing Business, either Franchise or Independent. Financial Institutions of all multiplicity are sourced during the process. Using those institutions, we explore all SBA products, Commercial and Retail Lending products, Equipment Leasing, and 401(k)/IRA Rollovers to name a few. A Business Plan is the first step to ensuring success and is required from the very beginning. The Executive Level Business Plan is one of the items on our menu of services and has been developed as a highly successful tool. Your Business Plan is guaranteed to exceed all lender-underwriting guidelines. DCV guarantees every business plan we write. Please contact us to schedule a DCV representative for a speaking engagement or webinar presentation about SBA Lending, Writing a Strong Plan for Growth, Solving the Mystery of Franchise Funding, or other similar topics to enhance your event.