Frequently Asked Questions
If you’ve never gone through the Small Business Administration (SBA) lending process to secure a loan for your business, you may be overwhelmed or confused. Salt Creek is here to help. Please browse our frequently asked questions below and send us an email if you have a question that isn’t covered here.
General Loan Questions
The Small Business Administration (SBA) is an independent agency of the federal government that helps Americans start and grow small businesses. While the SBA does not directly lend money, the SBA sets guidelines for loans which are made by lending partners and guarantees that loans will be repaid so that some of the risk to lending partners is reduced. This allows lending partners to offer competitive rates and repayment schedules.
To secure a loan, a first lien on all business assets is required. The SBA requires the lender to collateralize the loan to the maximum extent possible, which could include personal real estate and/or marketable securities that the borrower owns.
Spousal income is not normally needed to secure a loan. If you choose to have your spouse guarantee a loan, we are typically able to include spousal income in the cash flow analysis. This can have a positive effect on the risk profile of the loan request.
Most acquisition loans receive a 10-year term with no pre-payment penalty (there is a pre-payment penalty on SBA loans with a 15 year term or greater). Commercial Real Estate loans offer much longer terms, often as long as 25 years.
The interest rate for your loan is dependent on the overall credit risk. Factors such as cash flow, collateral, and credit history help determine the risk associated with each individual loan. At Salt Creek, we offer highly competitive interest rates and our understanding of the financial advice industry can help secure the lowest possible interest rate.
Yes, we typically like to see a business valuation for the borrower’s practice, which helps determine the loan-to-value ratio and secure the best terms for your loan.
Personal credit history does play a large part in evaluating the overall risk of a loan. We will evaluate many factors that are on your credit report, such as, late payments, use of available credit, and of course, the score. While there is no required minimum credit score, we like to see a credit score over 675. Scores over 700 are preferred.
Salt Creek helps financial advisors secure loans for a variety of business purposes, including:
- Practice Acquisition
- Working Capital
- Equipment Purchases
- Leasehold Improvement
- Debt Refinancing
- Commercial Real Estate
- Partner Buyouts
- Recruitment Capital
- Asset Purchases
Our experienced team and streamlined loan process help to improve the chance that your loan will close on time. Some common causes of delays that we seek to avoid include failing to have an executed purchase agreement, not having the proper insurances in place, and not having proper entity documentation for the borrower.
General insurance requirements for a loan include life insurance for the amount of the loan, general liability insurance, personal property hazard insurance, E&O Insurance, and worker’s compensation insurance when required by state law.
It’s our goal to offer a personalized, customized and intimate loan experience to provide the best outcome possible for our clients. Our process is built on offering a single loan advisor for your entire lending process. This helps us provide the highest level of service and customized support to our clients.
In a best-case scenario, it’s possible to close a loan in about 30 days. However, most loans take between 45 and 60 days to complete. Commercial real estate loans can often take 60 to 90 days, due to the additional complexities of real estate transactions.
The timeline for a loan depends on a variety of factors including:
- How far along is the borrower in the purchase process?
- Have practice valuations have been ordered?
- The type of collateral required; real estate takes longer due to required appraisals
- How fast the borrower submits the requested financials and loan documents
For a non-real estate loan, our goal is to complete the process in under 45 days. We start by providing a pre-qualification letter within 48 hours of a submitted loan application.
You should apply when you are within 90 days of needing a loan, or once a letter of intent or purchase agreement is created. Having 90 days gives us ample time to move smoothly through the loan process. Additionally, we can begin the loan packaging process before officially applying for a loan, which can help prepare for the loan process and reduce the time to closing.
What can I do to be best prepared to get my loan?
The best way to prepare to get your loan is to work with your Salt Creek loan professional to:
- Organize your financials and tax returns
- Prepare your year-to-date profit and loss statements and balance sheet
- Have a succession plan in place
- Be aware of the insurance requirements
- Communicate with the seller about what will be needed from them
- Have the purchase agreement prepared
Your Salt Creek loan professional will help provide guidance and up-to-date checklists every step along the way.
There are a variety of factors that can improve your candidacy for a loan, including low revolving personal debt, well-documented income and expenses throughout the year, and a succession plan in place with an ongoing transition taking place with the seller’s firm.
The amount you can borrow depends on the type of loan. The SBA has a maximum loan guarantee of $5 million per borrower. If you have outstanding SBA loans, the outstanding amounts are subtracted from the $5 million maximum.
Types of SBA Loans include:
- 7a Small Loans Up to $350,000 with a maximum 10-year term
- Acquisition or Growth 7a Loan $350,001 – $5,000,000 with a maximum term of 10 years
- 7a Commercial Real Estate up to $5,000,000 with a maximum term of 25 years
- 504 Commercial Real Estate up to $5,000,000 with terms up to 20 years.
Practice Acquisition Questions
Typically, the seller of a firm will need to provide documentation to support the value of their business. This might include three years of tax returns and year-to-date profit and loss statements, as well as balance sheets. Practice performance reports with client metrics from the broker-dealer or custodians are also typically required. Finally, a 4506-T Tax Transcript Request Form is always required so the lender can verify the tax returns submitted match what the IRS has on file.
Yes, a valuation is always required on the seller’s practice. If the seller has already completed a valuation, we can sometimes use it, as long as it meets SBA eligibility.
Depending on the situation, communication with the seller may be arequested. During a valuation, the seller will typically need to communicate with the valuation firm.