Key Takeaways
- Traditional lending can make it hard for certain business owners to secure a loan if they don’t fit into the typical “credit box.”
- SBA 7(a) loans can help overcome these challenges by looking at the bigger picture.
- At RBAC, we get to know our clients and turn these challenges into opportunities.
You see the potential immediately—the passion in their eyes, the solid business plan, the clear market opportunity. But as you dig deeper into the financials, those familiar roadblocks start appearing. Maybe their credit took a hit during a rough patch. Perhaps they're too new to show two years of tax returns. Or their seasonal cash flow doesn't fit the traditional lending mold.
We know how frustrating it is when you have to turn away business owners with real potential, but here's the good news: those strong businesses that don't work for conventional financing are often perfect candidates for SBA 7(a) loans. With the flexibility that comes from SBA backing, these loans help business owners who otherwise wouldn't qualify get the capital they need to open their doors, upgrade their operations, or purchase essential equipment. Let's explore some of the most common challenges that make SBA 7(a) financing the ideal solution.
Credit score challenges
Traditional banks typically place a lot of emphasis on a business owner’s credit score, but what happens when that score takes a hit based on factors unrelated to the business? Traditional financing is often out of the question, but that’s where an SBA 7(a) loan can be the solution. The government guarantee that comes with a 7(a) loan allows us to work with a lower credit score and focus on the owner’s character and the business potential.
Here’s a real-life scenario from our work: a spa owner had gone through some challenges in her personal life that negatively affected her credit score. When she needed additional funding for her business, RBAC was able to focus on her history as a successful business owner with great revenue over her 10 years in business. Our ability to lend based on the owner's business history, potential growth, and personal character ensured that those earlier moments didn’t define her future success.
New business with a short operating history
To secure a loan with a traditional bank, businesses typically need to show two or more years of tax returns plus proven cash flow. This isn’t always possible for a new business with a short operating history that needs capital in order to start or grow. SBA 7(a) loans look beyond what the business hasn’t done to what it could do with the right support. If the plan is solid and the owner has experience in the field or industry, it can help them qualify for a loan with RBAC.
Here’s another real RBAC moment: A physical therapist was ready to strike out on his own but had no financial history as a business owner. Where the bank saw no track record, we saw years of experience, a solid plan, and clients who would follow him anywhere. We reviewed his business plans and dedicated client base and were able to secure an SBA 7(a) loan that allowed him to start his practice despite having no business financials or operating history.
High equipment costs or collateral gaps
High equipment costs and collateral gaps can make traditional financing a no-go, but RBAC can give the green light. SBA 7(a) loans can use the purchased equipment as collateral, so the business can get up and running.
In one real-life deal where a client needed to purchase equipment to open a brewery, we were able to use equipment he purchased as collateral to secure the loan. This was a great option for the owner with high upfront expenses and for us with high confidence in the business potential.
Seasonal or unique industries
For seasonal industries, cash flow varies in a predictable pattern throughout the year — but this presents challenges to traditional financing that often requires predictable cash flow in order to lend. SBA 7(a) loans are able to set up a flexible payment structure that works with the business’s cash flow.
In another real-life deal, a party provider whose peak seasons were spring and summer couldn’t get a loan because their cash flow varied throughout the year. We took a look at the cash flow and found that it worked best to use a flexible payment structure that allowed the owner to make larger payments during times that cash flow was higher. This kept the business open and the party going.
Higher debt-to-income ratios
SBA 7(a) loans are structured to support higher debt-to-income ratios than traditional lending. The SBA program considers the entire financial picture rather than just the numbers on the page, allowing us to factor in the reasons for the higher debt, including things like equipment purchases for expansion.
RBAC’s SBA loan program also allows for the possibility of refinancing some debt to improve cash flow and make repayments more manageable. For example, we recently worked with a manufacturing company that had taken on multiple equipment loans to keep up with increasing demand. They later realized their business cash flow would benefit from one consolidated monthly payment with a longer term to match the useful life of the equipment (meaning how long they’ll use it) financed.
When to call RBAC
When a business is strong, but traditional financing just isn’t an option yet, think of RBAC as your “second look” partner. Often, we can take those clients with big dreams and get the financing they need to achieve them. We offer a quick pre-qualification screening call that can determine whether or not the business is a good candidate for an SBA 7(a) loan which saves everyone time in the long run.
When you refer your client to RBAC, you set them up for success and keep your relationship strong — they’ll see that you believe in them even though you can’t offer traditional financing, and they’ll know you went the extra mile to support them in their endeavors.
When you have a client that needs a second look, send them our way, so we can support them together.
