SBA Loans for Improving or Expanding Your Business

December 05, 2017

Access to financing can be the life blood for most closely held businesses. In this episode of “The Bottom Line,” EisnerAmper manager Tim Schuster looks at several categories of Small Business Administration (SBA) loans. He covers what lenders examine in the approval process as well as how business advisors can help you make the most of the process.

Transcript

Dave Plaskow: Hello and welcome to “The Bottom Line.” This podcast examines the everyday business and finance issues faced by closely held and private businesses. We hope to provide you with news you can use in what we like to think of as a jargon-free zone. I’m your host Dave Plaskow and with us is Tim Schuster, a manager in EisnerAmper’s Private Business Services Group. In this episode, we’ll discuss how you can finance the improvement or expansion of your business with SBA loans. Nice to see you Tim.
Tim Schuster: Dave, a pleasure to see you as well.

DP: Tell us the difference between SBA, or Small Business Administration loans, and traditional commercial loans, which we’ll save for another day.
TS: The SBA really doesn’t make a loan. However, it does guarantee the bulk of the loan, be it from a bank, a credit union, an alternative lender or some other. This decreases the risk to the lender and makes it more likely for a business to get approved for an SBA loan. In short, it increases access to capital, which is what every business needs in order to grow.
DP: There are several types of SBA loans, correct?
TS: Yes. The first one that comes to mind is probably the most common one, which is SBA 7A. This one is for working capital, fixed assets and debt refinancing, and that’s up to about $5 million. There’s a micro loan and, as you can tell, it’s going to be smaller. That’s up to about $50,000, and the maximum term is six years. This is used predominantly for working capital or fixed assets, and this cannot be used to purchase real estate or pay an existing debt.
DP: Right.
TS: SBA 504 is long-term, fixed-rate financing for equipment and real estate. The maximum 504 portion is $5.5 million for manufacturers and green projects. The green projects should have about a 10% reduction in carbon emissions. So there is a stipulation for anything that’s under the “green umbrella.” All other projects under the 504 have a maximum of $5 million. So the typical deal is about $12.5 million. Just something to keep in mind when you’re looking for a loan of that size.
DP: Okay.
TS: Disaster – we actually briefly spoke about this in a prior podcast–and it covers business assets that were damaged or destroyed in a declared disaster. So what you’ve been hearing recently with hurricane relief efforts in Houston or the California wildfires, for example. There are loans that you can take out in order to recover, and they are extremely affordable and offer low interest for consumers. The loan itself is usually typically up to about $2 million.
CAP lines is another type of SBA loan. There are several lines of credit programs to meet short-term and seasonal working capital needs. There are four types and the maximum term is about 10 years and for $5 million.
DP:Yep.
TS: An Export loan is, as indicated, for any sort of exporting activities–engaging in international transactions and entering into new foreign markets. There are three different types – international trade, EPWC, and export express and are up to 25 years and $5 million.
DP: It’s my understanding that there are some derivatives of these loans, such as loans for veterans and so on.
TS: Absolutely.
DP:We stated earlier that the SBA doesn’t make the loan. But do the lenders examine any different criteria when they’re looking at loan parameters, or are they looking at the traditional things that lenders usually look at?
TS: The bank will ultimately make the decision, but it will also look at traditional loan parameters such as financial statements, sales tax data, income tax returns, collateral, credit scores, and any history of borrowing or bankruptcy. It’s as if you’re applying for any other type of loan in the marketplace.
DP: Sure.
TS: You need to fill out those sheets that come from the bank looking for your personal financial information. It’s the same exact concept.
DP:Okay.
TS: The SBA has two major requirements–you need a net worth of $15 million or less, and the applicant must have a two-year average net income of $5 million or less. Again, this is for small businesses.
DP: What’s the role of the business advisor here?
TS: We can help determine the need for a loan, establish which type would be the best fit, expedite the paperwork involved in applying for an SBA loan, implement the loan and assess the effectiveness. If we go through this process and the loan isn’t working, then let’s try something else. You might have thought you needed a micro loan, but it’s too small so you really need a larger loan. So you just want to make sure you keep your business advisor in the loop during this process.
DP: Good. Well you know what time it is Tim. Our listeners just can’t get enough. It’s time for your New Jersey Historical Society fun fact.
TS: I think everyone’s going to love this one because this is a hotly debated subject that’s been going on since the 1800s. Where is the Statue of Liberty located? New Yorkers say it’s in New York and New Jerseyans say it’s in New Jersey. I did a little bit of digging. The land on which the statue stands is actually owned by New York, but the water surrounding the statue is actually located in Jersey City, New Jersey. Now what? I dug a little deeper and found on the citizenship exam acceptable answers for where the statue is located are New York, near New York City, or New Jersey.
DP: Interesting. So we’re going to straddle the fence on this one?
TS: We’re straddling the fence.
DP: We’re not going to pick one?
TS: We’re olive branching this one.
DP: Alright. We want to keep the peace between the great state of New York and the great state of New Jersey.
TS: Exactly.
DP: Tim, thanks for this valuable information.
TS: My pleasure.
DP:And thank you for listening to “The Bottom Line” as part the EisnerAmper podcast series. If you have any questions or there’s a topic you’d like us to cover, email us at contact@EisnerAmper.com. Visit EisnerAmper.com for more information on this and a host of other topics, and join us for our next EisnerAmper podcast when we get down to business.

About Tim Schuster

Mr. Schuster is a Manager providing tax compliance services to individual filers, as well as assistance on tax returns for companies in the manufacturing and real estate industries.

More Podcasts in This Series

You Mean Employers and Employees Are Not on the Same Page?

Meredith Brown speaks with Tim Schuster about employee vs employer perspectives on the evolution of financial wellness, compensation, and employee incentives.

Employee Benefits That Are on the Fringe

This episode of The Bottom Line, Tim Schuster examines some examples of employee benefits and who are using them, and if they’re having the desired result.

6 Types of Executive Compensation to Consider

Tim Schuster discusses executive compensation, option grants, deferred compensation, fringe benefits and more. He also examines what to be aware of when preparing an executive compensation package.

Is There a Difference Between Outsourcing and Private Business Services?

Lindsey Gross of EisnerAmper’s Outsourced Finance and Accounting Group joins Tim Schuster from Private Business Services to discuss the differences between these two areas, client case studies that demonstrate those differences, and which types of client could benefit from each.

You’re Not Using Social Media to Grow Your Business?

The Bottom Line looks at how you can use social media to grow your business and examine the different communication platforms available including Facebook, Twitter and LinkedIn. You really need to develop website content and push it on social media platforms.

Pair of New Laws Impacts NJ Workers and Employers

Tim Schuster, a manager in EisnerAmper's Private Business Services Group, discusses new NJ legislative initiatives happening in Trenton that you should be aware of. The first is the New Jersey Family Leave Act and the second is the increase in NJ's minimum wage.

Creating a Quarterly Planning Calendar

In this episode of The Bottom Line, EisnerAmper Private Business Manager Tim Schuster discusses developing a quarterly planning calendar, including budget, tax planning and speaking with your trusted advisor. Review these concepts monthly from an accounting perspective.

The Importance of Having an Emergency Fund

In the wake of the government shutdown, Tim Schuster offers tips on creating an emergency fund. To avoid living paycheck to paycheck, Tim suggests putting money into a separate savings account, as well as a portion of any windfalls. Emergency funds should include medical expenses.

Why the Sandwich Generation Needs to Talk Finances

Tim Schuster from EisnerAmper’s Private Business Services Group talks about the family issues and financial burdens for members of the sandwich generation - those individuals who are responsible for raising their children as well as caring for aging parents.

New Jersey Sick Leave Goes into Effect

As New Jersey initiates paid employee sick leave The Bottom Line examines the requirements for business owners. Some reasons for which employees can use sick leave include an employee's own personal medical treatment or legal services, or that of a family member.

Filling Employment Needs in a Sellers’ Market

EisnerAmper’s Private Business Services Group Manager discusses the current unemployment rate and the booming economy despite current trade tariffs. To help attract employees, businesses are offering incentives such as assisting with student loans to attract millennials.

Don’t Postpone Making Your Will

EisnerAmper’s Private Business Services Group partner discusses estate planning and the need to have a will - from an online provider or an estate planning professional - to help your heirs understand your estate asset wishes and the Tax Cuts and Jobs Act estate tax thresholds.

Don’t Get Scammed By Someone Pretending to Be from the IRS

The Bottom Line looks at some of the common IRS scams out there and what you should do if you fall victim to one of these scammers, including email and personal data hacks, ID theft and fraudulent returns. Contact your accountant if you think you’re a victim of a scam

High Court Rules on the Taxation of e-Commerce

The landmark Supreme Court decision in the Wayfair case on e-commerce taxation allows states to collect sales tax on e-commerce companies, even without brick and mortar locations in that state, affecting all e-commerce companies such as Amazon. Accountant guidance is suggested.

Employee or Contractor – The DOL’s Watching

This podcast discusses the New Jersey Department of Labor and the employee or independent contractor (freelance work) classification under new Tax Cuts. A DOL audit might look at your Facebook and LinkedIn, and can also change your employee or contractor classification.

NJ Budget Mixes Some of the Familiar (and Not-So Familiar)

This episode of The Bottom Line looks at New Jersey Governor Phil Murphy’s inaugural NJ budget. The discussion includes the Governor's proposed New Jersey's state tax on Uber and Airbnb, addressing tax loopholes for hedge funds and New Jersey tax's effect on the gig economy.

Tim's Top Individual Tax Questions

In this episode of The Bottom Line, Tim Schuster discusses some of the individual taxation questions bubbling up from clients in the wake of tax reform including adjusted gross income changes, private business taxation, QBI, and the importance of talking with your tax advisor.