Business Loans Are Easy. . .If You Know the Secrets: If You Know the Secrets

By Alan Jewells

Introduction

It has been my experience that in almost every walk of life, there are, for want of a better word SECRETS. There are secrets to business, secrets to health, secrets to developing real estate, secrets to wine making you name it.

The purpose of this book is to share with you the secrets and tricks of the trade that I have learned regarding small business loans. These tricks are not grand illusions or mysteries. They are not difficult to understand. They are, like almost all secrets, simple formulas, procedure and principles that if followed, will elevate your success.

Business owners have a quality about them which is unlike other individuals, whom do not aspire to own a business. In working with entrepreneurs for over two decades, I have found they literally have a sense of magic about them. The ability to win success, lose it, and win it again; the ability to have vision and see beyond others in an industry; and the ability to focus with intention and purpose unlike spouses, friends, or associates that may be around them. Thus, the purpose of this book is to help business owners make their magic happen. They are the soul of the economy.

I have been in banking and lending for 23 years. The bulk of my career has been working with small business owners who are seeking commercial credit. During this time, I have realized that I have spent the majority of my time answering questions about the start-to-finish process of business loans. It doesnt matter if I am talking to a client, real estate agent, business broker, mortgage loan broker, etc. Always, the majority of the conversation is focused on the details and how to succeed in the process.

The purpose of this book is to answer 90% of these questions. Neither this, nor any book, will be able to give 100% of the answers. The commercial lending industry is always changing and in many ways is subjective in how items are considered for a loan. But, I promise that this book will provide you a solid foundation to move forward in the loan process.

This book is an attempt to make the process easy to understand, and at the same time provide a sufficient guide to walk you through every step. It is being written in plain English, like I was sitting across the table from you. I am intentionally trying to avoid terms which only bankers will understand, and I am intentionally not going into details which you will not need to be concerned with. I am also writing this book in a brief version that could be read in a weekend. I know your time is money, and I dont want to waste it.






This book is not written, however, as a guide for larger loan transaction (those over $10 million). The focus of this book is to aid small business owners and the professionals that serve them. Also, it is intended to be an aid, but not a Band-Aid. In other words, dont try to use this book to cover up problems or deceive lenders. Deception or fraud to lenders is the worst thing you can do. It will waste everyones time, and could place you in a position which you will regret later. The best thing to do is always be of full disclosure.

Find the right loan program, find the right lender, complete the paperwork, and move on to success. It can be as easy as 1, 2, 3

Lending is an art, and this is my interpretation. Borrowers are encouraged to look at all options and available sources. In my quest to be a productive member of the lending and business community, I am genuinely hopeful that this book will be beneficial for you, with these intentions in mind. The greatest moments of my career are when I witness clients succeeding in their business. Be focused. Be successful.

• Language: English
• Publisher: Xlibris US
• Release date: May 31, 2012
• ISBN: 9781477102732

Alan Jewells

Mr. Jewells is originally from Pennsylvania, which is where he started his 23 year banking career. A veteran in the lending community, having held several lending and executive positions, he is considered by many to be an authority on small business lending. Mr. Jewells has held key positions with several organizations, to include: Director of Marketing and Director of Finance for the Erie County American Institute of Banking, and Director of Government and Community Affairs for the North East Chamber of Commerce, North East, PA. Believing in the importance of networking, he has consistently maintained memberships with over a dozen social and business networking organizations. After receiving his undergraduate degree, Mr. Jewells became a graduate of the Central Atlantic Advanced School of Banking and the Central Atlantic School of Commercial Lending. Both are programs of the American Institute of Banking. Mr. Jewells values relationships, both in personal and business affairs, and believes that these relationships, which have been built on trust, respect, and loyalty, are among his greatest accomplishments.

Book preview

Business

Loans

Are

Easy

. . . if you know the SECRETS

Written by an experienced banker. The insider point of view and complete guide to teaching you how to succeed in the loan application, approval, and closing process. A must have manual for small business owners and the professionals that serve them, including an entire chapter on the SBA Government Guaranty Loan Program.

Alan Jewells

Copyright © 2012 by Alan Jewells.

ISBN:          Ebook                                      978-1-4771-0273-2

All rights reserved. No part of this book may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording, or by any information storage and retrieval system, without permission in writing from the copyright owner.

Reproduction or translation of any part of this work beyond that permitted by Section 107 or 108 of the 1976 United States Copyright Act without permission of the copyright owner is unlawful. Requests for permission or further information should be addressed to Prosperous Partnerships, Inc.

Many of the designations used by companies, manufacturers, and sellers to distinguish their product are claimed as trademarks. Where those designations appear in this book, the publisher was aware of a trademark claim, the designations have been printed with initial capital letters.

To order additional copies of this book, contact:

Xlibris Corporation

1-888-795-4274

www.Xlibris.com

[e-mail]

113371

Contents

Acknowledgments

Introduction

Chapter 1—The Five C’s Of Credit

Chapter 2—Different

Types of Business Loans

Chapter 3—Different Types of Lenders

Chapter 4—SBA Loans

Chapter 5—The Art Of Negotiation Your Loan Approval

Conclusion

Resource Guide

SBA—National District Offices

Glossary of Lending Terms

Profile of the Author

Disclosure:

Acknowledgments

To my wife, for her never failing love and complete support for

23 years.

Her kindred spirit has provided me the comfort of an angel.

To my three children, who are the light of my life.

They have provided me my fondest memories, greatest joys, and the true purpose of life.

To my parents, who have provided me a flawless example of integrity and work ethic.

To the many professionals and fellow bankers who have taught me along the way.

To all business owners, whose entrepreneur spirit is the soul of our daily lives.

To the Divine which is inside of all of us, that has provided me the encouragement, the source, and the wisdom for this book.

A Sincere… Thank You.

Introduction

It has been my experience that in almost every walk of life, there are, for want of a better word… SECRETS. There are secrets to business, secrets to health, secrets to developing real estate, secrets to wine making… you name it.

The purpose of this book is to share with you the secrets and tricks of the trade that I have learned regarding small business loans. These tricks are not grand illusions or mysteries. They are not difficult to understand. They are, like almost all secrets, simple formulas, procedure and principles that if followed, will elevate your success.

Business owners have a quality about them which is unlike other individuals, whom do not aspire to own a business. In working with entrepreneurs for over two decades, I have found they literally have a sense of magic about them. The ability to win success, lose it, and win it again; the ability to have vision and see beyond others in an industry; and the ability to focus with intention and purpose unlike spouses, friends, or associates that may be around them. Thus, the purpose of this book is to help business owners make their magic happen. They are the soul of the economy.

I have been in banking and lending for 23 years. The bulk of my career has been working with small business owners who are seeking commercial credit. During this time, I have realized that I have spent the majority of my time answering questions about the start-to-finish process of business loans. It doesn’t matter if I am talking to a client, real estate agent, business broker, mortgage loan broker, etc. Always, the majority of the conversation is focused on the details and how to succeed in the process.

The purpose of this book is to answer 90% of these questions. Neither this, nor any book, will be able to give 100% of the answers. The commercial lending industry is always changing and in many ways is subjective in how items are considered for a loan. But, I promise that this book will provide you a solid foundation to move forward in the loan process.

This book is an attempt to make the process easy to understand, and at the same time provide a sufficient guide to walk you through every step. It is being written in plain English, like I was sitting across the table from you. I am intentionally trying to avoid terms which only bankers will understand, and I am intentionally not going into details which you will not need to be concerned with. I am also writing this book in a brief version that could be read in a weekend. I know your time is money, and I don’t want to waste it.

This book is not written, however, as a guide for larger loan transaction (those over $10 million). The focus of this book is to aid small business owners and the professionals that serve them. Also, it is intended to be an aid, but not a Band-Aid. In other words, don’t try to use this book to cover up problems or deceive lenders. Deception or fraud to lenders is the worst thing you can do. It will waste everyone’s time, and could place you in a position which you will regret later. The best thing to do is always be of full disclosure.

Find the right loan program, find the right lender, complete the paperwork, and move on to success. It can be as easy as 1, 2, 3…

Lending is an art, and this is my interpretation. Borrowers are encouraged to look at all options and available sources. In my quest to be a productive member of the lending and business community, I am genuinely hopeful that this book will be beneficial for you, with these intentions in mind. The greatest moments of my career are when I witness clients succeeding in their business. Be focused. Be successful.

Chapter 1—The Five C’s Of Credit

The Backbone Of Lending

All business lenders and banks will use a formula to determine what type of loans they will approve and fund. The trick is to determine how that model or formula will fit the loan you need.

This first chapter will get into the basics behind how lenders think. I originally considered placing this information later in the book, but realized, once a borrower understands these concepts, the other sections of the book will have more meaning. This is truly the backbone of lending.

The first place to start is with the Five C’s of credit. This is a common reference used by bankers to review the primary areas that will be considered for your loan. Almost all loan write-ups, which are created by a loan officer or underwriter, incorporate these key principals. They may call it something different, but with rare exception, these principals will determine the rate, term, conditions, covenants and cost of a loan. These important areas are:

- Collateral

- Capital

- Credit

- Character(s)

- Cash Flow

Let’s review each:

Collateral

Collateral is the source of value or perceived value that a lender can take a lien on in order to secure the loan. The type of collateral you have will determine the type of loan you will qualify for, the term of the loan, the interest rate, etc.

One consistent item to consider when reviewing the collateral you can offer is the Loan-To-Value ratio. The LTV is the percentage a bank will lend on, or document as value, toward a loan. Another way to look at this is how much benefit an asset will give toward the loan. An example of this is if you use your primary residence as collateral for a business loan (basically as back-up collateral), the bank will typically give you a loan-to-value allowance, toward the business loan, of up to 80%—85% of the value of the home. The bank, in essence, discounts the collateral based on what it will take to repossess it, hold and maintain it, and resale it. For the purpose of the below Chart A, I have indicated a typical loan-to-value for most categories of collateral.

Of course, lenders will not rely on a borrower’s assessment for collateral value. They will hire an appraiser or complete an in-house bank evaluation to document the value. This is a consistent theme in all forms of lending, documenting everything and evaluating everything to support the conclusion made. If things go wrong, they want to be able to demonstrate to their top executives, board of directors, banking regulators, etc. that they were adhering to prudent lending practices.

Cross collateralization is when a lender takes several forms of collateral, in many cases, with differing lien positions (2nd or 3rd lien position for example). Please be aware that when you complete a loan application with a lender, they will look to other collateral as a means to cross collateralize the loan, if a shortfall in loan coverage exist. This extra collateral may aid you in obtaining the loan, but you may be sacrificing the use of that collateral for other purposes and/or the ability to easily liquidate or sell it. Be fully aware of the obligation you are making. This also applies to individuals who may pledge collateral for a loan for someone else. The future use, selling, or refinance of the property is at the mercy of the lender.

Another item which can be taken into consideration when evaluating collateral is government guarantee programs like the Small Business Administration (SBA) Government Guarantee Program. Although the SBA Program is not technically collateral, because of the additional security or protection offered by the government’s guarantee, many lenders will allow for more liberal guidelines pertaining to collateral requirements on these loans. For example, in the below chart I state that loan-to-value ratio for owner operator real estate can be as high as 90%. A 90% LTV would NOT be typical for a conventional or traditional bank loan (usually a maximum of 85%), however, it is common under the SBA Program. More details on the SBA Program will be provided in Chapter 4.

Chart A—Collateral Classifications

Typical examples of collateral, loan-to-value ratios, and loan maturity terms are stated in the below chart.

Footnotes:

*Commercial purpose loans will sometimes require a balloon payment (ex: 1, 3, 5, or 10 year increments). Please note, this is to be avoided when possible and should be part of the negotiation process. Longer terms will almost always be in your favor.

**T.I.A.C (taken in abundance of caution or being used for cross collateralization purposes, due to a collateral shortfall). When a lender takes a lien on collateral, taken in abundance of caution, or as a means to cross collateralize the loan, the term is usually subject to the primary purpose of the loan, not the collateral. Example: if the purpose of the loan is to purchase equipment, even if real estate is provided for collateral, a lender will usually set the term to match the purpose, like 5 to 15 years for equipment. Not only based on the collateral provided. This is prudent lending. Additionally, residential real estate, for the purpose of this book, is being viewed for collateral for business and commercial loans. The above is not an indication of what a residential home lender will provide for that purpose.

Commercial Real Estate—Owner Operator Properties

Owner operator properties are real