small business administration ("sba") loans: q&a with darius Mahajer of main street launch

This week, the ladies of Smith Shapourian Mignano LLP are thrilled to present the following Q&A with Darius Mahajer of Main Street Launch.  

Based in San Francisco and Oakland, California, Main Street Launch provides aspiring entrepreneurs with access to micro and small business loans from ranging from $10,000 to $250,000.  Darius manages the San Francisco Emerging Business Loan Fund, where he serves as the liaison between entrepreneurs and lenders.
 
The ladies of Smith Shapourian Mignano LLP first met Darius at San Francisco Small Business Week in 2016, and are thrilled to feature him as a friend of the firm in this Q&A blog post.

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When should a startup or small business consider applying for a Small Business Administration (“SBA”) loan?

Many startups end up at the front door of their local SBA lender after being rejected by a bank when seeking a loan.  Banks are for-profit establishments seeking to earn their stakeholders more and more dividends, and hence are not necessarily in the business of making loans to small mom & pop shops or startup businesses which have no track record of repayment ability; otherwise little cash flow; insufficient collateral; or less than stellar personal credit.  
Luckily, the SBA has devised a facility to alleviate some of these hurdles for small businesses, so as to allow them an opportunity to enter the marketplace and experience continued growth.   

As a Community Development Financial Institution (CDFI), Main Street Launch focuses on job creation/growth, blight abatement, and funding underserved communities, and is therefore a great fit for a business that was just told “no” by the bank.  

What can an SBA loan be used to pay?

The SBA has three main facilities: (1) microloans that lend up to $50,000, which can be used for many different business purposes; (2) 504 loans that typically lend up to $5.5 million for commercial land, building properties, and new construction; and (3) the 7a loan, which is the SBA’s flagship product.  The 7a loans, like the microloans, can be used to finance many business needs such as working capital; furnitures, fixtures, and equipment (“FF&E”); inventory; business acquisitions; construction; as well as to refinance business debt. It is capped at $5 million, and can also be used to purchase commercial real estate just like the SBA 504 loan.

What kind of documents do these businesses need to be prepared to show you when they apply for an SBA loan?

When asking for a small business loan from your local lender (SBA or not) be prepared to divulge your personal and business financial health, both quantitatively and qualitatively.  99% of lenders are going to want to see your financial statements, tax returns, a business plan or executive summary, legal entity documents, and more.  The good news is if you prepare a loan packet for one lender, even if they say “no”, a lot of the items in the packet are easily transferrable to an application packet for another lender.  Don’t give up!

When businesses are considering taking out an SBA loan, what can they do to make sure they are likely to be approved for the loan?

Have a plan, understand your required budget, and be completely transparent with your lender.  A loan is a long-term relationship so the more honest a borrower is, the more likely the lender is willing to work with them during the hard times and promote them during good times.  

​Second, managing your business financials accurately and reconciling monthly will prove very awarding when applying for a small business loan.  Make sure you have a bookkeeping service in place that monitors your company’s cash flow.  

Also, make sure that your personal credit is clean.  Why would a lender want to take a risk on your business if you can’t take care of your previous debt obligations?  Run your free credit report annually, and clean up (or dispute) any item(s) in collections and/or public records.

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This blog does not constitute solicitation or provision of legal advice, and does not establish an attorney-client relationship. This blog should not be used as a substitute for obtaining legal advice from an attorney licensed or authorized to practice in your jurisdiction. You should always consult a suitably qualified attorney regarding any specific legal problem or matter in a timely manner, as statutes of limitations may bar your claim.