TanPlan

There are a lot of myths and untruths surrounding Small Business Administration (SBA) Loans.  We will try to clear these up one-by-one so you gain a better understanding:

SBA Loan Misconceptions

Misconception

Reality
   
SBA makes loans directly to borrowers False.  The SBA does not loan money directly.  Only  participating bank and other lending institutions are allowed to make loans.  The SBA acts as a guarantor.  The SBA guarantees a certain percentage of each loan in the event the borrower defaults on making payments.
SBA loans are difficult to obtain for tanning salons False.  You hear this all of the time and one of the biggest misconceptions.  It is blatantly incorrect and people who tell you this, including some salon owners, are either ignorant or grossly misinformed.  Leasing companies are among the biggest spreaders of this propaganda.  The SBA looks at many factors including the credit worthiness of the borrower, the collateral, amount of the loan, purpose of the loan and loan-to-value ratios before making a decision.   
SBA loans take 3 to 6 months to obtain False.  It used to take up to three to four months to obtain an SBA loan approval.  SBA loans, depending on the SBA loan program, can now be approved within two to four weeks.  Once loans have been approved, funding can take place within 30 to 45 days.  A home loan, after appraisals, bank and termite inspections can take just as long, if not longer.
SBA loans require a lot of red tape and documentation False.  Documentation for SBA loans are, for the most part, the same as that required by most banks and lending institutions.      
SBA loans require a lot of bank fees Not true.  The SBA has a one-time SBA guarantee fee and prohibits banks and lending institutions from assessing other fees to.
SBA loans are hard to get and cost more False.  SBA loans are easy to obtain if you have good credit and liquidity.  SBA loans are, by far, at more attractive rates of interest than leasing and hard money loans. 
SBA loans are difficult to obtain if you are a business startup False.  SBA loans can be obtained by business startups.  Banks look at the underlying value of the business assets, collateral, credit worthiness of the borrower, business experience of the borrower and personal guarantees of the borrower.  If you meet these requirements and have a convincing business plan there is no reason why you cannot obtain an SBA loan.
SBA guarantees the loans so the borrower does not have to make any down payment False.  Banks make loans that are subject to the SBA's loan-to-value requirements (LTV).  These LTV requirements determine how much can actually be borrowed.   LTV ratios vary between 70% to 90% depending on the type and amount of loan. 

SBA Loan Programs

The SBA currently has three programs that indoor tanning salons and spas can use to obtain loans for a new salon, expand their existing one or acquire a salon.   The characteristics of each SBA loan program is described below:

Loan Program

Program Characteristics
   
7(A) Loans

PURPOSE:  Business acquisition, expansion, construction, recapitalization, refinance, working capital, and machinery and equipment purchase.  LOAN AMOUNT: Up to $2 million.  MAXIMUM GUARANTEE:  For those applicants that meet the SBA's credit and eligibility standards, the Agency can guaranty up to 85 percent of loans of $150,000 and less, and up to 75 percent of loans above $150,000 (generally up to a maximum guaranty amount of $1,000,000). This standard applies to most variations of the 7(a) Loan Program. However, SBAExpress loans carry a maximum guaranty of 50 percent guaranty. The Export Working Capital Loan Program carries a maximum of 90 percent guaranty.   TERMS:  Loan terms are based on the ability to repay, the purpose of the loan proceeds, and the useful life of the assets financed. However, maximum loan maturities have been established: twenty-five (25) years for real estate and equipment; and, generally seven (7) years for working capital.  PREPAYMENT: May repay up to 25% during first 3 years without penalty.  Above 25%, prepayment penalty of 5%, 3%, 1%.  INTEREST RATE: Interest rates are negotiated between the borrower and the lender but are subject to SBA maximums, which are pegged to the Prime Rate.  Rates are PRIME plus and vary between 2.25% and 4.25% above prime depending on the amount and term of the loan.  COLLATERAL:  Mortgage on business real estate, machinery and equipment, secondary collateral, UCC filings.  RECOURSE:  Full recourse of principals.  LTV RATIO:  90% LTV on commercial real estate, 85%-80% LTV for business acquisitions and 70% LTV for business startups.  DEBT SERVICE RATIO:  1.0X.  FINANCIAL DATA: For Businesses: 3 years of historical tax returns and financial statements; One year of projections for existing business or two years for startups - For Personal: Three years of tax returns & financial statements of owners with 20% or more ownership.
LowDoc
LowDoc is one of SBA's most popular programs. Once you have met your lender's requirements for credit, LowDoc offers a simple, one-page SBA application form and rapid turnaround on approvals for loans up to $150,000 (for loans over $50,000, you must also provide a copy of U.S. Income Tax Schedule C or the front page of the corporate or partnership returns for the past three years). The SBA will guarantee up to 85 percent of the loan amount. Completed applications are processed quickly by the SBA, usually within two or three business days. Proceeds may not be used to repay certain types of existing debt.  Business start-ups, as well as businesses with average annual sales for the past three years not exceeding $5 million and with 100 or fewer employees, including affiliates, are eligible.  This is the program most tanning salons fall under and the fastest way to obtain an SBA loan.

 
SBAExpress
SBAExpress, formerly SBA's FA$TRAK, is available for loans up to $150,000. The program authorizes SBA preferred lenders to use mostly their own forms, analyses and procedures to process, service and liquidate SBA guaranteed loans. The SBA guarantees up to 50 percent of an SBAExpress loan. Loans under $25,000 to not require collateral.  This is a change from the FA$TRAK requirements. Like most 7(a) loans, maturities are usually five to seven years for working capital and up to 25 years for real estate or equipment. Revolving lines of credit are allowed for a maximum of five years.  Tanning salon owners and entrepreneurs are not even aware that this program even exists. This is the fastest way to obtain an SBA loan.

 

SBA Loan Package Checklist

All banks and lending institutions require a certain amount of information from the borrower.  The SBA has prepared a convenient Loan Package Checklist (Click to view) to assist in you in your preparation.   Pointblank Business Technology is also available to provide the following assistance:  1) Determine if you qualify for an SBA loan, 2) determine how much you can borrow, 3) assist you with the preparation of all required SBA loan forms and 4) the preparation of an SBA-ready business plan.  We are here to provide you the knowledge you will need to get through the SBA qualification process and obtain your SBA loan quicker and faster than ever before.