SBA Loans

I know this much - there are many ways to open up a business. Three of which begin by:

1) Having enough money of your own to invest in it
2) Borrowing money from friends/family/investors
3) Taking out a bank loan with or without the Small Business Administration backing you up

Number one doesn't pertain to me. We invested a little of our own money and will continue to as we move along in the process, but after buying a home a year ago, leasing a new car earlier this year and with a new baby on the way, there wasn't a whole heck of a lot left to go toward the business.

Numbers two and three, with some twists, are the route I've taken. My father, who paid for my undergraduate education as well as my Culinary education deserves to be in the "Making it Happen" category. Because without him, none of this would be possible. And he was also very helpful in investing in the start-up capital needed to secure a bank loan - and for me to get the ball rolling on other aspects of the business - legal stuff as well as other stuff. His incentive is that he loves cheese as much as me, so, he's got that going for him. And I guess because I'm his only son with his first grandchild on the way.

I've not requested financial assistance from any other friend or family member - probably because I have a severe dislike of owing people anything, especially money. Though I will rely on the help of friends and family for other tasks - some pleasant (taste-testing sandwiches and cheeses) and others notsomuch (painting, hanging lights, watching my dog when I'm tied up with work, etc.).

Instead, I'm anticipating a loan from Commerce Bank which will be backed (80%) by the SBA. The purpose of getting an SBA backed loan is two-fold. 1) It helps get the loan. The Bank sees it as a safety measure - especially in these trying times. 2) It helps keep the interest rate reasonable. And with the recent cuts, I'm looking pretty good.

But getting an SBA loan isn't simply a matter of applying for a loan, putting up something for collateral and getting handed a check. It's pretty much a two-step process made up by lots of little steps.

I won't go into too much detail, but the basic requirements are thus:

Step 1 - Getting approved
Includes: Accurate business plan with all of the information you could possibly be expected to know or estimate include financial forecasts, amount of employee tax you'll need to pay, amount of taxes and insurances you'll need to pay, amount of working capital you'll need and on and on and on. Now, this is the easy part.

The tricky part is, at least for me, the collateral. I needed to have at least the total amount of the loan in backed collateral. I tried to use our home, car, dog and future child as collateral but came up short because of the amount of owed money on my mortgage compared to the current equity in my home. Argh. I honestly thought I was done for. I couldn't ask my father for more than he's already given me, and he wasn't jumping at the idea either (despite having two homes and more that could easily cover it) - so I hemmed and hawed for a day or two - okay, I freaked out a little. Then I got a grip, put together a few business plans and a proposal letter to some potential family members/friends who could possibly put up the collateral. My in-laws came to the rescue and after an SBA-sanctioned property assessment, got approved as my collateral for the loan.

Step 2 - Closing
About two weeks or so ago, I received a letter from the my SBA Closing Coordinator - actually, it was a laundry list of things I needed to send them to show that I was serious about my intent and that I had some safety nets (for the Bank) in case this doesn't work out for one reason or another. They want their money back, end of story. The list was 22 items long and included independent life insurance policies for me and my wife to the value of the loan, Filed Certificate of Formation, Filed Fictitious Name Certificate (for the business, not me), Evidence of Worker's Compensation Insurance, Improvement Contracts, Filed Collateral of Life Insurance among others.

Some posed Catch 22's like "Certificate of Occupancy". How the heck was I supposed to get that before I got the money to make improvements to the space? I lost sleep over that. And so to prevent another night of twisting and turning, I called the SBA Closing Coordinator and got some things straightened out. The Catch 22's ended up being things that I could present to the SBA post-closing and other items were things that the SBA would bring to the closing (i.e., Fully executed Landlord Non-Interference Agreement, etc.).

The problem with getting all of these things isn't that it's difficult to do or get. It's that it takes time. I currently commute three hours total, forth and back to work, everyday. I'm at the office from 9:30 to 6:00pm. Thus, this leaves very little time for me to get anything done. Sick days, personal days and vacation days can only go so far - especially when not wanting to look suspicious/like you are interviewing for a job.

To conclude this very (too?) long post, I will say that I overnighted a well-organized binder of this information to the SBA Closing Coordinator last night for arrival today. I'm hoping that I submitted everything correctly and in full - at least enough to schedule a closing date. With my last day at work (paycheck) two weeks away, I'll need to get that money to keep things moving with a safety net of sorts. Good thing we will get a decent tax refund this year to hold us over if need be. Fingers crossed.