Considerations when thinking about a SBA refinance request
Friday, April 17, 2009 by Mike Chatas
Greetings colleagues!
So far we are three for three with our SBA approvals in delivering on significant payment and structure relief for our in-market clients. There are several characteristics about these three deals that are worth mentioning. The SBA looks even harder at bank refi’s as compared to expansion opportunities. The common threads between all of these deals include:
- Strong personal credit
- Sound management team
- Good prospects for positive revenue and profit growth
- Adequate cash flow coverage to service debt
You might notice that I mentioned nothing about collateral coverage. That’s because right now cash flow is King in the eyes of the SBA. Collateral coverage is by far a secondary (or even tertiary) consideration. In fact, every one of these deals had very high LTV yet we received approval from the SBA anyway.
A company can demonstrate its high potential for positive revenue and profit growth by providing the bank with their most recent financial statements. We are hearing that the SBA has been declining refi’s that cannot demonstrate an ability to service debt (based on the most recent financial statements). Therefore no amount of collateral can make up for an inability to service debt.
We’ve noticed that some of our clients had great 12/31/2008 numbers; but now have poor first quarter results. We will most likely ask these clients to hold off on their SBA submissions until they become more cash flow positive. Unlike conventional deals, we won’t have to demonstrate three years of debt service; but the most current financials are extremely important to the SBA. It helps them to understand that they have, ‘turned the corner’, so to speak.
We encourage you to call Kenny or me with any questions, comments, or concerns.
Have a great week!
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