Business Loan Frequently Asked Questions ?
1).How much money do I have to inject for a business with start-up costs of $100,000?
You need to come up with 20% of the total cost to start your business (not the loan request). If it takes $100,000 to start your business, you will be required to inject $20,000 (20%); you will request a loan of $80,000.
2).Where can my capital injection come from?
Your capital injection can come from your own savings, home equity or monies given to you by a friend or family member that you don’t have to repay. You cannot finance your capital requirement through other sources (e.g. credit cards or another lending source). At least half of your injection must come from your own sources (savings or home equity). The rest can be gifted or an owner can carry back a note that is on full stand by. You can also borrower against your retirement accounts, which represent personal equity.
3).I have some problems on my credit report from the past; how good does my credit have to be?
We want to see that you are presently current on all your debt, that any derogatory marks on your credit report from the past are at least a couple of years old and that you have a reasonable explanation as to what happened.
4).If I have a bankruptcy in the past am I still eligible?
Your bankruptcy must be at least 3 years old depending on the loan product and there must not be any late pays, charge-offs or collection items on your report since the bankruptcy. Lenders want to see that you have been financially responsible since filing for bankruptcy protection.
5).Is there a penalty for early repayment?
There are no penalties for early repayment. You can repay the loan at any time without penalty.
6).If I don’t have any money to put into a start-up business, can I still get a loan?
We currently do not have loan programs without capital injection. Please ask your loan officer for details since loan program requirements can change from time to time.
7).Can items already purchased be counted as my capital injection?
Yes. As long as you have receipts for purchases made and proof of payment, funds already spent in the start up of your business can be applied toward your capital requirement.
8).What would be considered collateral?
The best form of collateral is real estate. If you own your home you will be required to use it to secure the loan. Real estate located outside the U.S. cannot be used. Business assets, autos, inventory and whatever is purchased with loan proceeds can also be used to secure the loan.
9).If I have no collateral, can I still qualify for a loan?
Yes, having collateral can strengthen your loan request, but not having it will not preclude you from obtaining a loan.
There are some credit based loans under $50,000 that do not require collateral. If you are looking for a larger loan and are a start up business, you generally will need some collateral. Weak collateral can be mitigated by a co-signer willing to guarantee the loan. Existing businesses with positive cash flow may be eligible for a loan without collateral or co-signer.
10).Do I need to identify my location prior to applying for a loan?
Retail businesses need to identify their location because the site is a factor in start-up costs, tenant improvements and projections. Often you can talk to the landlord and let them know you are interested in their location to see if they will hold it for you. You won’t want to sign a lease until your loan is approved, but you will want to identify your proposed site in the business plan and gear your expenses and projections towards that location. You will also need to request a Letter of Intent (LOI) from the landlord indicating that the landlord is open to having your business in that space.
11).If the SBA is guaranteeing the loan, why wouldn’t I automatically get approved?
The SBA grants lenders like CDC what is called “preferred lender status” which allows us to approve a loan without consulting the SBA. Lenders want to make loans to entrepreneurs they believe have the capacity to service the debt, and do not want to have to go to the SBA for repayment. Therefore, considerable scrutiny is still exercised in the approval process.
12).If I have no experience in the industry, can I still qualify for a loan?
Experience is a key indicator of success in a business. We want to see that at least one of the owners has strong experience in related endeavors in order to ensure success.
There are some credit-based products that do not require the owner of the business to have experience in the industry. If you have identified a manager to work in your business who has at least two years of experience in the industry, you may still be eligible for a loan.
13).Do I need a business plan?
If you are a start-up business, you will need a business plan. If you are an existing business in operation for more than two years, you will need to compile a summary of the history and nature of your business. Or, if you are expanding your business in some way, you will need to explain your expansion plan, how expansion will positively affect revenue.
14).What documentation will I need when I submit my loan application?
For fully underwritten loans, you will need all application forms completed, personal and business tax returns for the last three years and an interim financial statement since your last tax reporting period. For start-ups, you will need a business plan, projections and assumptions on which the projections are based. You will not have business tax returns or financial statements. For credit-based loans, only an application is required.
15).How long does it take to get funding?
Depending on which loan program you apply for, approval time varies. We have products that take a few days for approval and funding, and others that take a couple of months, depending on your needs and situation. Consult with your Loan Officer to determine which product is right for you and specific timing of that product.
16).What fees are associated with the loan products?
Fees are loan specific and are discussed in further detail in the loan package. There are no fees unless you get approved.