Startup Financing - SBA / Peer to peer

[Dr Phi11y]

Hey folks,

Has anyone had recent success in obtaining a bank loan backed by the SBA? I know banks are not likely to lend to a startup, but I was wondering if anyone had success in using this method to purchase an existing mat.

Additionally, has anyone heard or had any experience with peer to peer lending such as on prosper.com where loans are funded by individuals in an auction-style status, usually with a bit of a higher interest rate?

In my current status I am hoping to get a loan for about $60K, which is after I put in my 20% for a total capitalization of $75K. Business Plan almost complete and ready to make an offer. Any advice when approaching my bank and also the smaller local banks?

Thanks,
Phil

[Paco]

I got my first mat just over 2 years ago with an SBA loan. I could not believe how easy it was. In less than 30 days we were ready. I bought an existing laundry but a business plan was not required of me. they even gave me more than I need for working capital. I put no money down! I am working on my next mat and going through my same banker, Chase. Good luck

[coachelladoug]

SBA loans are not easy to get, but not impossible, either. What you need to know is that you will not get an SBA loan, unless you put up collateral. ie. A Home or Cash as in a Certificate of Deposit.

Douglas

[JohnH]

Phil,
Your best bet is to find a smaller regional or community bank that has experience working with the SBA loan programs. I have gotten two SBA loans. My local bank (First National Bank of Broken Arrow) actually insisted on getting the SBA involved to finance my business start up about eight years ago. The project would not have launched without that involvement.

Douglas is correct that you have to have a lot of skin in the game before you will be approved for any SBA loan -- I had about 30% of the capital needed.

My first SBA loan was (is) called a 504 Debenture Loan. It is a 20 year note and provided forty percent of the money needed for my project. The other 60% was loaned by my bank, though I think that money is also guaranteed by the SBA. The SBA money was funded through the sale of debentures, which are in essence a bond. I cannot pay off the debenture loan earlier than 10 years or there is a penalty. The money from both entities (bank and SBA) was used for the purchase of the property, construction of the facility from the ground up, plus equipment and furnishings.

And yes, there is a lot of paperwork involved. But wait...there's more!

The bank steered me to the Small Business Capital Corporation to facilitate the paperwork involved in processing the 504 loan. The SBCC is -- not sure how to describe it -- kind of a quasi-government entity that does just that: facilitates the paperwork to ensure the SBA loans are administered properly. I think this type of business exists under various names around the country. Anyway, they guided me through all the stuff I had to fill out and they continue to administer the SBA portion of the loan, taking their cut of the processing fees each month.

Fast forward five years. In 2010 we were getting ready to build laundromat number two in the end cap location of a small strip center -- a leased location that was a former dry cleaner. I had the capital for the build out (plus the landlord kicked in about 60 grand). I approached my bank for an equipment and furnishings loan. They were happy to oblige, but again, they wanted the SBA to guarantee the nine-year loan. This time, it was not nearly so complicated. I had some paperwork to fill out, but the bank did most of the legwork. This time the SBA did not supply any of the money, they just guaranteed the loan. It did not change the terms of the loan that I had already worked out with the bank, but there was an advantage. If a bank enlists the SBA's guarantee, SBA rules preclude the bank from charging any closing or processing fees. At one percent, that saved me $2,750 dollars.

It pays to have a good working relationship with your bank.

John

[Adamski]

John,

If I owned that bank, I'd gladly forego the $2,750 in fees in exchange for the government guarantee against default on a $275,000 loan. I think the real winner was the bank.

[JohnH]

Good point, Larry!

[Dr Phi11y]

Team,

Thanks for all of the replies. I will attempt to give the banks I do business with (mortgage and checking) first dibs, but those are the big boys. Then I'll walk into my local banks with a few branches and show them how I want to improve the community and give the residents a clean, efficient laundry - and really mean it!! I'll keep you posted!