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SBA Loans

So What’s the Real Value of the SBA?

You've probably heard the old saying, "To get a bank loan, you must already have the money." Collateral wars are generally the reason for this saying.

Frankly, the reality is you must have a solid business to get the money. Or, you must have the ability to collateralize what you’re requesting. Don’t feel bad if you don’t. Most people don’t have those resources, so that’s why they look to the SBA for help with loans that they wouldn’t otherwise get.

How does that leverage play?

If your total liquid assets match the loan principle and your loan goes bad, the bank can only recover at best a large portion of the principle. If you have an SBA loan, they would also recover the interest, just as if the loan had been paid off early. That’s a real benefit to the bank and it induces them to make loans that might not be strong enough to qualify for a regular commercial bank loan.

Buying an Existing Restaurant Facts of Life

In your specific case, you have two dilemmas. First, you're a startup, and second, you want to buy a restaurant. If you have no operating history, you cannot show the bank you can successfully manage a business. This is a fundamental requirement. The bank must feel your management skills will result in a monthly loan payment throughout the course of the loan. You can (and should) use the restaurant's operating history to assist in bolstering this area. In fact, if the current financial statements and financial history of the restaurant are good – then you have a chance. If not, then you might end up swirling into the ice cream machine of thought that restaurants are the most risky business venture in America. This is why a relationship with the bank is critical to your issue.

By definition, restaurants are a bad loan just waiting to default. Don’t take this personally because it "is" the way that most bank loan officers and "loan committees" view restaurants as businesses. Much like insurance actuaries judge insurance risk, banks judge risk by the overall business type – restaurants go out of business faster than any other business. So plan on a presumptive attitude from the bank (even if the loan officer is your brother), that you don’t have a chance of succeeding in your business. This doesn’t preclude you getting a loan, however. Just make sure you have your ducks all in a row. continued

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