When Should You Start Preparing Materials for an SBA Application?

Kyle and Adam here from Projection Hub, and we're back with another edition of SBA Burning Questions, where we take frequently asked questions or questions that people reach out to us and ask regarding starting businesses, buying them, expanding businesses, and and planning to use SBA. And so, my question for Adam today that we're going to break down is, you know, [music] we have people coming out and reaching out to us every single day, whether that's expressing interest in help with a business plan or creating the projections or navigating the SBA process. And so many times we have people come to us who are very prepared to take a specific step. They say, "Hey, I want to I want to write a business plan, for example." When we know, you know, there's maybe some other steps that they could potentially be taking first before going through the the time, the effort, the cost to to make that next step. So, I think in general, especially looking at the SBA, there's a lot of different steps. There's a lot of different things that have to be done. And so, my question for you is, what's a rough order of events or, you know, you don't have to outline every single step in the process, but what are some of those key steps where you would recommend someone do something else first before they make the decision to to do something like write a business plan or create the full financial projections. So, but yeah, take your take your best stab at that. >> Yeah, so I think a lot of times what we see clients do is they've they've talked to an SBA lender. They say they want to apply. Lender says, "Okay, here's a list of all the things you need to to get me, you know, your last 3 years of personal tax returns, your personal financial statement, your resume." And then they say, "And a business plan and projections." And depending on the lender, some lenders will just give you this long list without really pre-qualifying you at all or like understanding, like, "Okay, give me the two sentence version of your business plan and projections and let me look at your everything else, your personal finances, your credit score, your tax return, your outside income, like, your experience, all those things." Those things are already prepared in theory. They're like the the tax returns already done. so start with that. The lender a good lender ought to be able to tell you, "Okay, here's here's how I would approach the business plan. Here's what I think is realistic. You're you're likely going to be able to get 400,000 to be able to start this, you know, gym based on your experience and situation." If you don't do that, if you don't get that like pre-qualification from the lender or feedback from the lender, what you often do is you'll you write a business plan for a $700,000 project, you spend a bunch of time getting it nailing down. First look at your personal financial statement, the lender says, uh "We'll never do that. We would do 400,000, but not seven." Well, you're you're back to square one. You might as well trash the business plan and start over. So, I just always recommend if you don't have a term sheet, like if all your lender has done is given you a list and it one thing on the list was a business plan, and they haven't really told you whether that is your your two sentence version of the plan is realistic and a budget amount, find a different lender. Talk to somebody else. You know, reach out to us, we can help with that. But yeah, you may just be spinning your wheels. I think a big part of like there obviously some some variables that are going to change probably your recommendation from like an acquisition versus a startup. There are some additional steps you can take if you're seriously pursuing an acquisition before a startup. Like a startup, there's I don't want to minimize a startup, but there's not a ton of things in your control. There's not a ton of steps in your control. It's like you have that set of documents and that's about it. Like does your personal financial situation look solid or do you have your taxes done and caught up and do you have a have you at least like put together notes and thoughts and a little bit of research about what you want to do? So, if you're reasonably confident that you do want to pursue something, then I guess all there is to really find out is like is there a lender that's even remotely interested in talking with you? So, to like what you're saying, at least if you're not getting some feedback, I think on your strength personally and if they even consider doing a startup loan, that should probably change that conversation. Whereas an acquisition, it's like you're looking at deals, you're talking to a broker, you're you have some financials to So, there's a lot of steps to I think to accomplish first before you probably feel like you really need to do Honestly, like continuing to use the business plan, I would say that's probably the most common one we hear because it takes time. There's a lot of effort that goes into the business plan. So, someone wants to know like when do I need to knock this out or like hire someone or >> And what should the plan be? >> Mhm. >> Like I think so often it's I mean a good example is we had a client that wanted to start a a dump truck startup business. And, you know, he wanted to be the like operator, not one of the drivers. And so, he in order for him to like make enough money to make it worth doing, you need to be at a certain scale. So, he he said, "I need three trucks for me to be able to like actually make enough to live on just being the operator and the salesperson and the you know, doing the accounting and that sort of thing. I need three trucks." Well, you know, that was end up being a pretty big request, you know, nearly a million-dollar startup request for a trucking business. And, you know, my thought was a like go write the business plan until we get some feedback because the feedback might be no way in the world you're going to get a million dollars to start this up until we know your personal financial situation. Now, in this case, he had a really strong background, really strong personal financials, and we made a case in the business plan. We we talked to a lender first and said, "Hey, if we had a good plan in place, do you think we could get three trucks? Cuz if we only get one, it doesn't make sense. We're not He's not going to do it. So, it's three or bust and the and the lender looked at things and said, "Yeah, I think I think we could get there if we have a good plan." We worked on the plan and we got it approved. But, a lot of time That's rare. I think a lot of clients might start out with we want to do three three trucks. You write the plan and the lender says, "Just start with one." >> I I think a big thing, too, is what you just indicated is lender communication. I think that's honestly the source of this problem is if someone's not receiving feedback, like some guidance from the lender on the timing of things, that's probably a red flag to you in general about the lender. And I'm not even saying that to throw dirt on the lender. It's just it's a red flag on their level of interest in working with you. Like if they're not willing to to give you some give you a term sheet based upon your your personal financial situation. And I think a big part of this too might just be talking to the right lender. You know, I'll we'll link down below. We have a a free SBA lender finder, which is just essentially we took all of the publicly available SBA loan data from like the last 5 years and put it into a little tool so you can filter like which lenders are making loans to startup car washes in Colorado, right? So you at least have some sort of an idea of what type of lenders or how many loans are even being made to someone that matches kind of your situation there. I would probably talk to those lenders first because I don't want to Are we going to get censored if I say something negative about Chase? I don't want >> [laughter] >> I don't want that to happen. But like if you just go to a really large bank and you walk in and you say I want to apply for a startup loan, you're going to get that checklist. You know, they're going to say like, all right, you need all these 17 documents. And that's just because they have different types of deals they're prioritizing and working on. Whereas if you go to the lender who made the most loans to a startup car wash in Colorado, you might get to talk to a a business banker or someone, you know, someone that can actually at least kind of like feel you out initially and give you that direct guidance. So I do think that that type of conversation you're having with a lender should give you a lot of that insight. Are they interested in getting you a term sheet? Are they just giving you the list of of things that you need to submit? Are you just getting an email back from like a portal you submitted online? So those would be some of the indications I would probably look out for that give you a sense of like when do you actually need when is it actually worth your time to to produce those documents that take a little bit more more time. >> Yeah, I think that's a great point. If the first reaction is here's a checklist of things and they haven't really asked you many questions. It means one, they're not interested and they're just trying it could mean that they're not interested and they're just trying to scare you away or two, means they have they're just paper collectors. They have no decision-making. They don't understand how the decisions are made. They don't know what to ask or what to look for and so they're just collecting papers and they're going to send it over to someone else who who does know what they're looking for and and may immediately that it may be that they you were to collect all this paperwork for this paper collector person. They send it to underwriter. Underwriter first look is like no way, right? And that I think that happens a lot. So you want to try to find the person that is on the front end asking you really probing questions because they don't want to waste their time or your time collecting all this stuff if it's not going to work. You ought to be able to a good lender ought to be able to sniff that out in a 15-minute conversation and you know, hopefully save you a whole bunch of time right on the back end. >> And you should be able to find like a business lender for a bank. So like like Huntington, they're a very big prominent SBA lender. If you walk into a Huntington branch or you go on their website and you just submit whatever an initial application, you might get that checklist. You might just get that like default kind of next step, but I guarantee you you can just like look up on Google like on a website or LinkedIn. It's like who are the business bankers or business lenders for Huntington like in your state and you'll probably get some email addresses because lenders want leads. So that you should be able to find someone to reach out to you kind of at least quickly skip to like who's a person I can talk to. Now they may just direct you to that a portal or something like that and again, but that might just be a sign that you need to talk somewhere else or or what not. So yeah, all in all I think the takeaway is if you're not able to have a conversation with someone to get some direct feedback on if they're interested in working with you, then I would probably consider that as a sign they're they're not interested and maybe you should talk to another lender. And if you hear that five times or 10 times, then you might might to go back to the drawing board or work on your credit or save some more money or or or do something like that. But, yeah, to wrap this one up, uh we offer a free SBA expert review. Um if you want to save yourself all of that that pain that we just talked about of hopping around and waiting to get to find a lender that will actually give you feedback on your situation, uh we do that for free. So, you can fill out our free SBA review, uh give us some highlights of your situation, and we'll we'll give you some some honest feedback on our on our recommendation and and things to work on. So, thanks for hanging out, and we will uh catch you in the next video. Thanks. >> Thanks. >> [music]