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In today's ever-evolving business landscape, opportunities to invest in unique ventures arise regularly. Michelle, a prospective business owner, recently reached out with a compelling question: Can she purchase an existing bed and breakfast in Norfolk, Virginia, using SBA financing? The twist? The current owner seems to be writing off numerous expenses. Let's dive into this intriguing scenario and explore the viability of an SBA loan for such a venture.
Michelle's Bed and Breakfast Dream
Michelle's aspiration is clear: she wants to acquire an existing bed and breakfast in the picturesque town of Norfolk, Virginia. Armed with the necessary financial documentation, including tax returns, she faces a crucial question. The current owner, it appears, has been deducting a plethora of personal expenses within the business's tax returns. Michelle's primary concern is whether securing an SBA loan is still a feasible option given this unique situation.
The SBA Loan Possibility
Beau, an experienced professional in the lending industry, responds to Michelle's query with a resounding “yes.” The key to making this work lies in the presence of commercial real estate within the transaction. Here's what needs to happen:
1. Comprehensive Financial Documentation
To initiate the SBA financing process, Michelle would still need the business's tax returns from the previous three years and year-to-date financial records. These documents are vital for assessing the bed and breakfast's financial health.
2. Identifying Add-Backs
One crucial step in the process is identifying any “add-backs” – expenses that can be added back to the financial picture. Since the current owner has been including personal expenses in the business's finances, there may be opportunities to adjust the financials accordingly.
3. Projection-Based Loan
With the necessary financial data in hand, an SBA loan can be structured based on projections. This means crafting a financial plan that takes into account the potential for improved cash flow once personal expenses are removed from the equation.
The Key Factors
Beau highlights that the success of securing an SBA loan depends on several critical factors:
Creditworthiness
Michelle's credit score plays a significant role. A strong credit score will enhance her chances of securing the loan.
Global Cash Flow
The bed and breakfast's global cash flow needs to align with the lending criteria. Essentially, the business should generate enough income to support the loan repayment.
Financial Stability
Having minimal revolving expenses and a one-to-one global cash flow ratio are indicators of financial stability that improve Michelle's eligibility for the loan.
The Reality of Bed and Breakfast Ventures
Michelle's situation is not unique. Many small businesses, especially in industries like bed and breakfasts, face challenges related to personal expenses intertwined with business finances. However, Beau reassures Michelle that SBA loans have successfully supported similar ventures. This reassurance stems from the fact that commercial real estate is involved in the transaction.
Exploring Financing Solutions
Beau concludes by offering to discuss SBA financing in more detail with Michelle. He emphasizes that SBA loans come in various forms, including the SBA 7A and 504 loans, catering to different business needs. Whether someone is starting a new business, buying an existing one, purchasing a franchise, building an office space, or expanding an existing enterprise, SBA financing offers multiple solutions.
Reach Out for Expert Guidance
Beau extends an invitation to individuals like Michelle, who may be contemplating SBA financing. He provides a link for scheduling a call to delve into the specifics and guide potential borrowers through the SBA loan process.
Subscribe for Valuable Insights
Before signing off, Beau encourages viewers to subscribe to his channel, where he shares invaluable insights into financing. With over two decades of experience in the lending industry, he's a knowledgeable resource for answering questions and providing expert content.
In conclusion, Michelle's quest to purchase a bed and breakfast showcases the flexibility and adaptability of SBA financing. While unique challenges may arise, the presence of commercial real estate opens doors to funding opportunities. If you're intrigued by the prospect of SBA financing or have questions about various financing solutions, Beau is the expert to guide you on your financial journey.