Down Payment/Contribution; What Really counts as Borower Injection?

Now that 2010 has officially started, that is we are all back to work. Wait a minute I never stopped working for the month of December, oh well. I can now start sharing with you real examples of questions that come into our office every day. By sharing these questions with you we can all learn, and isn’t that the point of a blog. So let me set the stage for today’s question.

We have a prospective client that is trying to open up a manufacturing plant as well as a retail showroom. She has been busy lining up investors for her new venture. She was so excited when she called me today to tell me that she has acquired almost $800,000 in investor contributions. She was sure that would get him an SBA Loan?

But I had to tell her that she still needed real cash in the deal of over 120,000 as well as significant real estate collateral. Why did his $800,000 not suffice?

First of all to her merit she was extremely creative in raising the capital. So let’s look at what she did.

They got Landlord concessions, contractors to work for equity, sold convertible notes, and they even gave equity out to the landlord in the form of a percentage lease. She did everything that was right, except none of this was considered real capital for the purposes of an SBA Loan.

Contribution means exactly that, how much money do you or your company have to put down for your new project? For an SBA Loan with no real estate the client would have to put down at least 15% down. The client could get a gift letter from one of his investors, but the lender wants to see that the borrower has a real participation in the project.

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