SBA Loans — Things to Consider

Oklahoma has just had all 77 Counties approved for low-interest SBA loans, and I thought I would post a few things to consider.  First of all, I get the fact that small businesses hit with an expected cessation of business (that means income, that means cash flow, that means money to buy groceries and pay the electric bill) are desperate.  I understand that most small businesses live very much month to month — if not week to week.  I also understand that if a small business doesn’t have money coming in, the owner doesn’t get paid.  Trust me — I GET IT.

I also get that when you are under sudden, intense, terrifying stress is the worst possible time to make difficult, complex decisions.

If you are applying for an SBA loan (or considering it), read everything carefully.  Most SBA loans over a certain amount require collateral, and that usually means a 2nd mortgage on your home.  This is true despite the fact that I have never represented a small business owner with an SBA loan who really understood that.  Oh, they all signed the mortgages.  I print the mortgage papers off from the County website and show them their signatures, but in the heat (and frequently panic) of the moment, they simply did not process the fact that they were putting their homes at risk.

So, read everything carefully.  If you don’t understand something — ask questions until you do, and that doesn’t mean until you can parrot back what someone has told you.  Ask questions until you understand the words on the pages in front  of you.

Then, ask yourself a few things — 1.  What am I being asked to put on the line for this money?  2.  How profitable was the business before this happened?  3.  How much other debt do I have?  4.  Am I borrowing money so that I can make payments on other debt?  5.  How long will this money tide me over, and what is the likelihood that the state of the pandemic, the state of the economy and the state of my business will be in position to not just be back to paying the regular bills, but also in place to pay this new bill (remember, these are loans, not grants)?  6.  How much is the payment on this loan?  7.  When do repayments start?

The hardest thing is to try not to ask what you will do if you don’t get this money.  Before you let yourself head down that road, call someone who understands your business and who understands not paying bills.  Remember, a lot of the financial experts we trust are people who prioritize paying your bills above all else.  In many cases, they don’t understand that sometimes the credit cards need to just not get paid for a while.  They also don’t always understand which kinds of debt you can go longer without paying than others, and who will work with you and who won’t.

I know these are scary times.  I understand being terrified of having no income and still needing to buy groceries and keep the lights on.  I also know that scary times can lead to great things — or worse things.  The problem is telling the difference.

There are some brand new tools in the Bankruptcy system for small businesses.  There are also some old tools that aren’t well understood.  For many small businesses, bankruptcy isn’t the end, it can be a tool for a new beginning.  On the other hand, waiting too long to file really limits your options.  Bankruptcy helps you deal with debt.  It won’t help you make payroll on Friday.  Good luck, stay safe and don’t be afraid to ask questions.  If you are in the Western half of Oklahoma, my phone number is in the right hand column, and whether I am working from home or at the office, I will return your call.

Elaine

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