There were 57,362 SBA 7(a) and 504 loan approvals in 2023, totaling 27.52 billion in financing for small businesses across the country. Here in Florida, our three million small businesses make up 99.8% of the total businesses in the state. Small businesses are the backbone of our local, state, and national economies. However, it isn’t always easy for small businesses to obtain the funding they need to expand, grow, and thrive. For this article, we interviewed Katrina Winberg, Managing Director of SBA Lending at Cogent Bank. Katrina joined Cogent in 2021 and has over 30 years of experience in SBA Lending. Keep reading for Katrina’s advice to small business owners on applying for SBA loans and more.
What initial steps should aspiring entrepreneurs take before starting a small business?
Aspiring entrepreneurs should be extremely diligent in their consideration of any business opportunity. The exercise of preparing a business plan is deliberate. The primary goal is to have the entrepreneur think through and evaluate each key component involved in their proposed business. This exercise aids in determining all the resources needed to achieve success. Initial steps should include:
- Having your personal finances in order.
- Having a solid understanding of the business’s operational and financial management.
- Possessing the ability to relay both in written and oral form.
This will go a long way toward allowing your lender to share your vision and secure the financing you seek.
Can a start-up business secure an SBA loan?
Entrepreneurs and start-ups can qualify for SBA financing as long as they meet program eligibility requirements. The primary metrics are being a “for-profit” entity located within the United States or a U.S. territory and deemed small in size based on the SBA’s industry standards. Not all lenders are willing to consider financing start-ups, but Cogent does.
When it comes to start-ups, we’re looking for industry experience or strong transferable skills, as well as how you’ve handled your personal credit and character. SBA applicants need to have capital to put into their business–with a start-up, the more capital, the better. The SBA no longer has an equity requirement, but most lenders, including Cogent, still have a 10% minimum.
When starting a business, many entrepreneurs use the equity in their homes to source cash injection and to serve as collateral. Another source of equity injection, which is often overlooked, is the opportunity to redirect 401K money into an entrepreneur’s start-up business. Some retirement accounts may roll over into a new business without incurring tax penalties via special programs that exist to assist entrepreneurs. Anyone considering this option should consult with their tax advisor, CPA, or legal counsel to ensure they are well-educated on the requirements when considering their options.
How can a new business owner determine the best business structure for their company?
New business owners should seek counsel from their legal and financial advisors when working to determine the best structure for their company. We also encourage new business owners to consult with a Small Business Development Center (SBDC). They can assist with all aspects of financial and operational planning. Small Business Development Centers are located across the country and offer free counseling and training for small businesses. The SBDCs near our Florida locations include:
What are the key financial considerations when starting a small business?
Projections are key for a new business, and borrowers often need help with them. Financial projections can make or break any small business. They should be thoroughly evaluated to ensure that the assumptions used to project revenues, expenses, profitability, and the level of working capital needed to support a business from inception to stabilization are carefully considered.
How should new business owners approach budgeting and financial planning in the early stages?
For new business owners, the challenge often comes as a lack of cash available for injection or collateral to secure the loan amount sought. The best advice is to plan early for both, accumulating some savings for equity infusion and collateral. Any business assets being financed will serve as primary collateral to secure the loan.
SBA recently made a program change that can assist with both challenges when an opportunity involves a full change in ownership. SBA will now allow a borrower to meet the minimum equity injection of 10% for a complete change in ownership via seller financing, provided that the seller note is on full stand-by for two years and fully amortizing thereafter. Any seller note must be subordinate to SBA.
It’s also helpful for new entrepreneurs to have experience with cash flow and other aspects of business financial planning and budgeting. A lender will want to feel confident that the borrower has a solid understanding of the fiscal management required to be successful.
How important is personal credit history when applying for a business loan as a new entrepreneur?
Personal credit history is an important factor that is taken into account when considering the extension of capital. In situations where there is no historical business financial information, it becomes even more important, as it is one of only a few historical data points available for review and potentially indicative of how one might handle the fiscal management of their business. As lenders, we recognize that sometimes events outside of one’s control could have adversely affected personal credit; this is why we evaluate history beyond solely looking at a credit score. It is important for applicants to be aware of their credit history and transparent about any deficiencies at the outset of conversations with a lender.
How can new business owners build a strong relationship with their bank, and why is it important?
Business owners can build a strong relationship with their bank by taking advantage of a wide array of services available through the bank. A full-service relationship often builds more familiarity between the borrower and their lender, affording better lines of communication and the evolution of a robust business/banking relationship. Relationships matter and are often most beneficial during tough economic times when a borrower may be in need of additional assistance. Having a lender who is familiar with you and your business gives you a clear advantage over reaching out to a general banking line or a toll-free number in a time of need. Cogent welcomes the opportunity to build a solid relationship with each and every one of our clients.
Can you share a success story of a start-up that has benefited from your bank’s services and support?
We recently worked with a small HVAC business owner who had never borrowed money before. He was new to the process and didn’t know where to start. We provided him with a road map starting with the financial information needed and culminating in an expedited timeline from start to close in order to accommodate a short fuse on a real estate contract. In addition to the challenges posed by first-time borrowers and the condensed time frame under which to execute, the borrower desired to conserve capital for business operations. Given that his business was relatively young and still in growth mode, we understood the need. We were able to deliver 90% of the financing, which allowed the small business owner to relocate from a home office to his very own commercial building while allowing him to retain the capital needed to fuel continued growth.
What makes Cogent a good banking partner for SBA loans?
At Cogent, we can help you start or expand your business with an SBA loan. As an SBA Preferred Lender, we can expedite credit decisions on SBA loans by utilizing our unilateral authority, which helps move the process along. Our experienced SBA lending team specializes in helping small businesses obtain the long-term financing they need through SBA 504 and 7(a) loans. While we have the ability to lend nationwide, our primary focus is the state of Florida and the greater Southeast. Meet Katrina and the rest of our team, and contact us today to learn more!
The information contained herein is for informational/educational purposes only. The views and opinions expressed in this document may be those of the individuals and may not necessarily reflect those of Cogent Bancorp and its subsidiaries and affiliates, or the entities they may represent. Content contained herein may be used in connection with the advertising and/or marketing of products offered by Cogent Bank or Cogent Private Wealth. The material is not intended to provide or substitute for legal, tax, or financial advice or to indicate the availability or suitability of any Cogent Bank product or service. You should consult with a legal, financial, tax, or other appropriate professional(s) for your specific needs and/or objectives before making any decisions.
