Working Capital Archives - Aurora Consulting | Commercial Financing Brokers

Forced to Take the COVID-19 EIDL

lrey — Wed, 29 Nov 2023 23:10:21 +0000

We received an inquiry from a Small Business Owner with a COVID-19 EIDL. Her (unedited) inquiry reads as follows:

“I was forced when I feel under duress during Covid to accept a loan from the SBA that I did not want to be forced into simply because the workers I had were independent contractors versus employees. The nature of my business is most of the instructors will not be employees. They are independent contractors so we are in a bind. If I did not accept the loan, my business would have immediately collapsed, and I would have lost all of my students and the instructors as well. Do you offer assistance with this to avoid bankruptcy.”

We’re passionate in our commitment to supporting Small Business. That’s why we give away a lot of free expert information and advice. It’s why we offer a one-hour paid consultation call where you can speak directly with Trevor, pick his brain, gain some clarity, and, sometimes, he’ll call the SBA with you on the line to help with challenging situations or questions.

The business owner quoted above never followed up with us to book the one-hour paid consultation call. It’s a shame because we would have done two things to help.

First, we would’ve explained the process of remediation on the repayment of the COVID-19 EIDL, with a focus on avoiding default and bankruptcy. Second, as we’ve seen in many of our calls, we would have provided some relief and in fact, other business owners have often said at the end of the call, “I feel so much calmer now.”

Trevor was a Mortgage Banker for 30 years. He learned a long time ago how to explain complicated financial procedural concepts to Clients, and how to remove emotion from the process. But let’s address something in the quoted message above about being “forced into” accepting the SBA’s COVID-19 EIDL.

First and foremost, no one forced anyone to take those funds. The application process was 100% voluntary based on need. If you needed the support immediately or thought you might need it soon, the funds were there for you to request.

Next, it appears the business was not eligible for the Paycheck Protection Program (PPP) loan(s) due to the nature of the employment relationship between the business and its workforce.

The business owner states that the instructors for the business are not employees, they are independent contractors. She states that “…the nature of my business is most of the instructors will not be employees.”

Let’s review and discuss these concepts and challenges.

The SBA’s PPP loan became available through approved Lenders as a result of legislation included by Congress in the COVID CARES Act. The PPP provided a low-interest rate of 1%. If the PPP loan was issued prior to June 5, 2020, it would have a two-year repayment term. After June 5, 2020, the repayment term is five years.

The program provided for 100% Forgiveness of the loan, essentially making this a “grant” of sorts. The purpose of the program was to keep people paid as employees, not needing to request Unemployment benefits.

For example, if your business was required to close to the public or to staff due to state-mandated pandemic lockdowns, the Congress of the United States wanted your business to continue to pay your employees their salaries as if the business was open.

The loan solved two problems.

First, avoiding the government process of Unemployment benefits both in terms of cost to the government and access to receive those benefits by the unemployed workers. In other words, the employee would still get their regular paycheck, and not have to go through the worry and wait for an approval of the unemployment benefits.

Second, the business could maintain its staffing so that, once lockdowns were lifted, the business wouldn’t have to go out to find new employees and replace departed employees.

While we worked to help our clients obtain approvals for the SBA’s COVID-19 EIDL program as paid consultants/preparers, we provided a courtesy service to many of those clients to process their PPP loan applications. We were not permitted by law to charge a fee for assisting. We processed several dozen PPP loans.

One issue that kept coming up during our review of the eligibility of a client’s PPP application was this misunderstanding of employee versus independent contractor. When we asked the question, “How many F/T employees does the business employ?” we would get an answer, for example, “9 employees, not including me (the business owner).”

When we reviewed the business tax returns, under the line for “Salaries/Wages” we’d often see that line item blank. That means no W2 employees. That means the “9 employees” are not actually employees; they’re independent contractors.

And, sure enough, on the line of the tax return for “Contract labor” there would be a dollar amount entered.

We’d have to call the business owner to explain the difference of employment classification and the reason why the business was not eligible for the PPP loan. We explained how the independent contractors working for the business would need to apply for their own, individual PPP loans because they were essentially small businesses.

Many of the business owners pushed back on our assertions of the ineligibility for the PPP loan. “But they work for me” was a common response. Okay, well, by itself, that’s a violation of IRS and Department of Labor employee classification rules. Let’s set that aside for now.

In that particular moment, we attempted to request PPP loan assistance, and it didn’t matter what the business owner thought about their relationship to the people who worked for the business. They were not employees, thus, no PPP loan.

The proceeds of the SBA’s COVID-19 EIDL could be used to pay employees. The program’s purpose is to provide the business with money to make up for revenue lost due to a disaster to be used to pay ordinary operating expenses.

This raises the question, “Can you use the COVID-19 EIDL funds to pay independent contractors working for the business?”

If the funds were used to pay those contractors while the business was on lockdown, without the contractors actually doing any work, then the answer is most likely, “No, you cannot use the funds to pay independent contractors.”

As previously mentioned, those independent contractors would have to apply for their own, individual PPP loans.

On the other hand, if the independent contractors were performing actual work services for the business at the time of the lockdown…and after…then, yes, the business could use the funds to pay those contractors as long as it matched previous operational standards of work and payment.

Meaning, if your independent contractor provided, let’s say, 38 hours of billable work hours to your business before the pandemic, and continued to provide similar services during the pandemic, then, yes, you could pay those contractors as an “ordinary operating expense.”

As we’ve discussed so far, many small business owners had challenges with this misclassification of their working staff. And those challenges became a horror-movie-level monster when these businesses were confronted with their need for the PPP loans, and the use of the EIDL funds.

We don’t know where the concept of misclassification of employees came about.

However, we know it’s been happening for quite some time. And we don’t know how it came to be that so many small businesses jumped on the “independent contractor” bandwagon.

What we do know is that too many small businesses treat their actual employees like independent contractors. From the employer side, the business saves on contributions to payroll taxes, disability insurance, unemployment insurance, and more.

The business avoids uncomfortable situations revolving around the issues of employee benefits. And most of the time, the business treats the independent contractor like an employee with work rules, scheduling requirements, and more.

The true definition of an independent contractor is that a person sets their own work schedules and standards. The small business can only provide basic guidance on the task to be achieved by the contractor. The independent contractor determines if, when, and how they will accomplish the result requested by the business.

Don’t believe us? You can read the classification rules on the IRS website for more information.

But these misclassification issues are legendary around the United States. Employees are paid as independent contractors but are required to work under employment rules and standards.

For their part, we’ve seen how the “employee” who’s really an independent contractor thinks they’re doing great because they get more money in their paycheck. They’re not aware of two important features of their “misclassified” employment status.

First, they’re not employees. Their employer literally cannot tell them what to do, when to do it, and so much more. Secondly, the misclassified employee is responsible for their own payroll taxes, including paying a “self-employment” tax on their annual tax return. Those additional taxes they pay actually make their overall annual take-home pay LESS than if they were properly paid as a W2 employee.

Let’s return to the email from the business owner who was “forced” to take the EIDL.

While we never spoke with her because she didn’t book the paid consultation call, we’ll hazard the guess that she’s guilty of the misclassification of her staff like so many other business owners. We’re confident because of her annoyance at being blocked from the PPP loan due to the employment classification of “independent contractors.”

We make this fair assessment because of our previous experience during the pandemic of speaking to thousands of small business owners, and how so many of them misclassified their employees.

Somewhere along the way, this small business owner decided to pay her employees as independent contractors, probably as a result of a conversation with her tax professional or bookkeeper so that she could lower her payroll expenses and improve bottom-line cash flow. We’ve seen this too often.

That strategic decision she made is the reason she was “forced into” the COVID-19 Economic Injury Disaster Loan, not for any other reason, but a bad decision she made to operate her business.

But is it a bad thing to have received the COVID-19 EIDL? We don’t think so.

The program for the COVID-19 pandemic was a modified version of the SBA’s traditional natural disaster loan; a program created in 1953 to help small businesses recover from a natural disaster. The loan program helps to repair physical damage from the disaster and recoup lost revenue as a result of the disaster.

The loans are low cost with terms as long as 30 years. That makes these loans very attractive from an affordability perspective.

We know from our experience of speaking to so many business owners during the pandemic, that many business owners had never taken on any debt for their businesses. Borrowing money to manage their business was a new, and often, unwelcomed concept for them.

We argue that had business owners, like the person in this example cited above, made better quality, strategic decisions for their business, they would have fared better in so many ways, not only by having access to the PPP loan.

We also encountered so many businesses with tax returns that zapped all their revenue with mountains of expenses, all with a view towards lowering net income and ultimately paying a lower income tax bill.

However, that lower net income could harm the business when trying to obtain financing because lenders often determine the maximum loan amount based on the net income.

We digress. Again, was it a “bad thing” to have taken a COVID-19 EIDL? In our humble, professional opinion, NO, not at all.

The program has some basic features that make this financing package very attractive indeed.

First, is the low-interest rate. As a for-profit business during the pandemic, the interest rate is 3.75%. For non-profits, the rate is 2.75%. Even at the time of the pandemic, those rates were far below market rates for business financing. Even more so today with the recent increases in interest rates.

Next, the loan is a fixed-rate loan. The rate…and the payment…never change! This is unusual in commercial financing because many business loans feature a variable rate feature.

The SBA’s COVID-19 EIDL is a 30-year loan. With the combination of low-interest rates and extremely long-term (most commercial loans are substantially lesser terms of repayment period), the money is, as one of our colleagues and financial services professionals recently said, “free money!”

But wait, there’s more.

There’s no prepayment penalty. If a business owner truly despises the idea of carrying debt on the books, they can create an aggressive repayment plan to pay off the 30-year loan earlier with no penalty. Again, unusual!

Many commercial lenders charge a penalty for paying off their loans early, and those penalties can be hefty.

Because the loan is a debt for the business, in most all cases, the interest is going to be tax deductible against business income. That lowers the overall income tax bill every year. NOTE: confirm with your tax professional if this is true for your business.

Therefore, if do the math:

Low-interest rate
Long-term repayment period
Tax deductible interest

It probably does work out to be, quite literally, FREE money

We encourage you to consider this before you rail against the fact that your business was “forced into” taking on this burden of debt. In fact, we don’t think it’s a burden at all for other reasons besides the litany of amazingness we’ve outlined so far.

If your business faces challenges making the monthly payments due to economic conditions, you can request a hardship accommodation to lower the monthly payment by as much as 90% (to a minimum of $25.00) for a six-month period! This is an incredible benefit of the program.

We don’t know of commercial lenders offering anything even close to this feature of the SBA EIDL. And, yes, you can request an extension of the six-month period.

Once cashflow is back on its feet, if you experience difficulties again in the future, at any time during the 30-year term of the loan, you can request another hardship accommodation!

There is one other “intangible” benefit that so many people avoid thinking about or talking about.

During the pandemic, whether your business was on lockdown restrictions, or experiencing pain due the depleted economy, where folks may not have been buying your goods or services, or you couldn’t access important components in the supply chain to create your product or service, you probably experienced a severe downturn in revenue.

We know this isn’t true for everyone, but it is true for many small businesses. So much so that, since it was the only true business-saving benefit at the time, the SBA’s COVID-19 EIDL may very well have saved your business!

If no other feature of this program has value to you, certainly this single intangible benefit must. We encourage you to take the time to do the math on what you lost compared to how the funds saved your business.

At the time of this writing, we’re encountering hundreds of small business owners having difficulty with the SBA’s COVID-19 EIDL. From challenges in their own business to find revenue, to challenges of making payments on the loan, and other considerations as well.

We see a lot of complaints about this program. And we also see a lot of folks trying to gain information on how to avoid repaying the loan. As a result, in place of embracing the good things about the program, we see business owners, such as the person who inspired this blog, complaining about how they were “forced into” taking the loan, or complaining about how student loans are being forgiven but not these loans, and on and on.

Focus on the positive, as they say. Use those features as a basis to feel more encouraged about how the program helped you, use those features to help you cease complaining, and instead, find positive ways to focus on the problems at hand that are causing you distress in your business.

Once you do, you might find that your business improves because you’re paying attention to the core issues causing problems and striving to find solutions to those problems. This leads to thriving in your business instead of simply “surviving.”

If you want expert guidance on your COVID-19 EIDL, our Post-Closing Blueprint is the solution you need! We cover every aspect of this program from your responsibilities to restrictions on your business to problem-solving advice, even a chapter dedicated to “How to Speak to the SBA!

The post Forced to Take the COVID-19 EIDL appeared first on Aurora Consulting | Commercial Financing Brokers.

US Treasury State Small Business Credit Initiative

lrey — Fri, 30 Sep 2022 15:16:36 +0000

The federal government is making available $10 Billion and all small businesses in the country are eligible for the money.

This is not the paycheck protection program or the economic injury disaster loan program. Both of those Covid-relief efforts have expired. This is also not a loan program from the Small Business Administration. It’s from the treasury department.

The program is called the state small business credit initiative, or SSBCI, and it works like this:

Your State submitted an application to the US Treasury proposing how to use the funds
US Treasury reviews and approves and funds directly to your State

So how does your business get access to these funds? You can go to the Council of Development Finance Agencies’ state resources map. The funds, once received by the states, will then be distributed to existing and authorized organizations that finance and support local small businesses.

These are community development investment funds (CDFIs), minority deposit institutions (MDIs), community banks, economic development groups and other non-profits that work with small businesses in their areas.

The funds will be used for loans, grants and equity investments. They can also be used to collateralize new debt with existing banks or insure their repayments. The whole idea is to get money in the hands of small businesses that wouldn’t otherwise be able to get financing through traditional lenders because of their financial history – or lack thereof.

Certain funds are targeted specifically to minority-owned businesses or businesses located in low- to moderate-income areas. But just about any business can apply for these funds, even non-profits.

Find out the organizations that are receiving SSBCI money from your state and reach out to them.

They need to get to know you and your business. The application process will take a bit of time so you want to gather your documentation – bank statements, tax returns, financial records – and begin down that road. You should be applying for funds from multiple places.

These organizations aren’t going to come knocking on your door. But they do have money to spend. Your objective is to get them to spend it on you.

Need more Working Capital?

SSBCI Treasury Guide

Through this program, the Federal government is making available $10 Billion directly to States for all small businesses in the country. In our Step-by-Step guide, we explain the program and outline how to access the funds including examples of eligibility and use of funds. If you want instructions on how to submit a financing request, check out our Business Financing Application Fundamentals BEACON GUIDES.

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Tracking Receipts for Your EIDL Funding

lrey — Sat, 13 Mar 2021 20:08:39 +0000

The question posed by an anxious Small Business Owner: “Do we have to turn in receipts for everything we spend on the advanced GRANT? If I get it, I’m scared to make sure I document everything properly that I need to. How are you spending yours? I’m unsure where I can use it and what’s off limits.”

Even though the “Advance” technically doesn’t have to be repaid, it’s still considered part of the EIDL program by SBA.

Therefore, in common sense terms you should keep records and receipts. In general business terms: Why would you NOT keep records and receipts? These are tax deductible items after all since they’re expenses against your business income. AND…tracking income and expenses is an essential monitoring tool to grow a business.

How can you know if you’re earning and growing if you’re not tracking income and expenses?
These are the reasons why it makes perfect business sense to track receipts and to keep good records.

Our opinion: There’s been so much confusion around these programs, mostly due to SBA’s terrible messaging and lack of clarity on these very questions. It’s disgraceful that we all have to hunt around the internet to collect “anecdotal” evidence from other Small Business Ownres to educate ourselves about the important fine points of these programs.

There should be a simple to read guide on the SBA website that anticipates and answers these questions.

We’ve had clients telling me since last April how they’re “terrified” of using their EIDL monies incorrectly. That’s an absolute shame.

In the early days we were more forgiving of SBA’s failures because, well, it was COVID and EVERYONE EVERYWHERE was overwhelmed. But a year into this thing you’d think SBA would have gotten its act together, especially in the light of their allocating SBA staff to contacting EIDL Borrowers for “Resolution Letters” and “Hazard Insurance” (good luck getting a definition of what that’s supposed to be!).

How about, instead of wasting tax dollars on staff salaries for that nonsense SBA allocated those folks to processing the loans? Or that they invested tax payers’ money on creating online materials that’s accessible to every Borrower and interested prospective Borrower with clear, detailed information on the EIDL and PPP programs?

Short answer: The terms of the EIDL Agreement are clear: receipts and records can be requested by SBA in the future.

Seriously, if we ran our respective businesses this way, we’d be OUT of business.

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Reconsideration Step by Step

lrey — Wed, 10 Feb 2021 00:52:06 +0000

Please find below our point by point recommendations on how to to submit your Reconsideration request to SBA:

NEVER file a 2nd application. You must only submit a Reconsideration request.
Send an email to PDCRecons@sba.gov with your request
In the SUBJECT LINE put: “Reconsideration: EIDL #XXXXXXXX
In the body of the email state simply:
“I hereby request a Reconsideration of my EIDL Loan #XXXXX. Please find attached the following documents:”
(LIST YOUR DOCUMENTS)

Documents to include:

Credit Authorization letter (see below)
Credit Explanation letter (see below)
IRS 4506T
SBA Form 2202 Schedule of Liabilities
Business Plan summary (see below)
Business Revenue Projection (see below)
VOIDED check
2019 Federal tax return (all pages)
2020 DRAFT tax return (all pages; indicate DRAFT)
Clear, color scan of front and back of Driver’s License

Your Reconsideration letter should be SUPER SIMPLE. Don’t overload the Loan Officer with details of your struggle.
Keep your explanation to a few concise sentences, such as:
“My business was a new enterprise. We were beginning to produce and sell product when COVID-19 caused a severe economic injury. We have pivoted our Business Plan to adapt to the challenging circumstances of the pandemic (see attached Business Plan Summary and Revenue Projection). We need assistance from the SBA EIDL program to help us to move forward and survive the pandemic. If we do not receive this assistance we will likely fail as a business. If we fail, our employees will be out of work and our business will no longer contribute to the fabric of the American economic community.”

CREDIT AUTHORIZATION wording: “I hereby authorize SBA to obtain an updated credit report for my EIDL Reconsideration.”
CREDIT EXPLANATION: Do not discuss your credit score. Simply address the challenges in life and/or business that affected your ability to pay credit accounts on time. For example: “In early 2019 I experienced severe financial crisis due to (DIVORCE/MEDICAL/JOB LOSS/ETC). I have worked to improve my credit.”
KEEP your explanation short, and concise. The Loan Officer will not “judge” you; they simply require an acknowledgment of your previous credit history problems.
Business Plan Summary: Keep it concise and explain the changes you made to adapt to the pandemic and how your business will succeed with these same challenges over the coming 12-24 months.
Business Revenue Projections: Broken down by Quarter with annual totals for the next 12 months.
SBA Form 2202

Be sure to include on EACH explanation letter your full name, Business name, Business address, EIN and EIDL #.

Sign and date EACH document, including tax returns. WET signatures are preferred.

Next steps after submitting:

After 5 calendar days, call SBA to confirm receipt. At that time SBA Agent might give you feedback on status, but probably too soon.
Be sure to check SPAM folder as SBA emails often wind up there
Be patient with the process. Timelines for Reconsiderations can be all over the map: days, or weeks, or months. Patience and persistence are the key characteristics of success with SBA EIDL Reconsiderations.

I hope you find this information useful! If this process seems overly complicated or onerous, our Consulting program covers all aspects of Disaster Relief Financing, including Reconsiderations, and PPP loans, State and Local Grants and any other Stimulus programs to help a business to survive this horrible disaster.

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Horror Stories of Disaster Financing

lrey — Sun, 07 Feb 2021 14:53:08 +0000

The more folks we speak to about Disaster Financing, both in online forums and in our free phone consultations, the more HORROR STORIES we’re hearing about financing “professionals” who purport to do what we do with assisting Small Businesses with SBA Disaster loans.

There’s the “guy” who wanted 30% of the proceeds of a PPP loan. (ILLEGAL)

There’s the company that wanted to set up the business with a usurious, disgusting, despicable, practically-criminal Merchant Cash Advance (MCA) loan just so the client could pay the company’s upfront processing fee for the SBA loan.

There’s the company that took monies for the EIDL application, inputted incorrect information AND filed multiple applications for ONE company under different iterations (LLC, Sole Prop).

Same thing with some YouTubers who seek to build their audiences with “bait click” junk where they claim to have knowledge of the exact workings of the Second Stimulus Legislation. We saw that same garbage back in April before the CARES Act passed.

Please, please, please, BE CAREFUL. Here are a few considerations to help you in your decision making when it comes to exploring disaster financing options:

Check their online reputation. It’s so easy and free to read reviews! Make the time.
Read their website. If it looks like a “template” and looks like the 76,000 other financing company websites out there, then it may not be a company with long standing professional or ethical standards. They’ve had 11 months to build a quality website.
Beware of bold proclamations. Unless you can see with your own eyes that a professional or “expert” has documented experience successfully processing SBA Disaster Loans, then you must listen with some skepticism. HINT: “bait click” titles with their YouTube videos or BLOGs are dead giveaways.
You shouldn’t have to borrow money to pay an upfront fee to hire a professional. Ethical professionals will work with you to make payment arrangements. Why? Because they’re confident in the results they can deliver.
A note about fees. For EIDL Loans, SBA allows a professional to charge up to $2500. And, they can charge more than that by requesting approval from SBA and demonstrating that the value of their services are commensurate with the fee they charged. You can find this language online in SBA Form 159D.
Read their Consulting agreements. The language should be “plain English” and should describe EXACTLY the nature of their services and responsibilities. The agreement should clearly state the fees being charged. The agreement cannot GUARANTEE a result and the compensation cannot be dependent upon a loan approval. SBA requires this language.
Beware any financing professional who defends the MCA program. These loans lead to HORRIBLE HORROR STORIES for business owners. The terms are onerous, expensive, and the Lender gets paid before your business sees a penny of your income. WHAT? Yeah, that’s why with all these sharks circling in the waters, you must be extra careful to protect your business.

There are other financing products out there…difficult to obtain, yes…but there are alternatives to the MCA loans. Anyone defending these products “to the death” is someone to avoid doing business with, period. (Extra punctuation language presented to punctuate the point!)

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Are Banks Failing Small Business

lrey — Wed, 25 Nov 2020 01:59:53 +0000

Lenders don’t actually like lending, and SBA can be useless thus leaving many business owners vulnerable to bad actors aka SHARKS circling the waters with expensive loans that will only cripple business owners with high interest rates and stringent terms!

Trevor grabbed his iPhone and recorded an almost psychotic rant after Linda Rey spoke with a Commercial Banker we’re hoping to add to our Lender Matrix. The Banker talked about how the underwriters have removed the passion from the process, which I understand.

We’re okay with that. We don’t really need an underwriter to be passionate. Business owners need financial professionals to have common sense, which has been removed from the process. There’s no common sense underwriting anymore, especially during the COVID-19 pandemic. Mind you, the banks are sitting on trillions in deposits!

Bottom line: If banks were actually lending money right now to small businesses to help support our economy, if banks were making smart decisions about how to interact with the ongoing COVID pandemic, then the MCA SHARKS would not be circling in the waters seeking to eat small businesses alive with high interest rate loans with horrible repayment terms.

There’s blood in the waters. The MCA loans, a loan that is based upon the credit card activity in your business for the last 3 to 6 months or 12 months, depending on the lender, and the interest rate is, uh, mind-blowingly high. And they take their money every time you swipe the Customer’s credit card. So it is the worst possible financing for a small business owner.

The problem is, it’s the only type of financing that’s out there. Those are the sharks. They’re swimming in the water. HEY BANKS! You need to step up. It comes from the top down. TOP DOWN! Banks: $2 trillion. WAKE UP! Smell the coffee. Figure out how you can make small business loans during the pandemic.

Use some COMMON SENSE and figure it out!

Assess your risk using a different model instead of sitting on all that cash while the SHARKS eat Small Businesses alive.

Business Financing Documents Checklist

Stop worrying about what's required when pursuing a business loan for your small business. This list will indicate what a lender, bank, SBA, etc. will want to know about you and your small business if you're looking for a business loan. These are prudent documents that help tell your small business story. Without them, it's difficult for lenders to assess you as a risk when it comes to lending your small business money. This is NOT SPECIFIC to the SBA EIDL loan.

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Summarize your Finance Package

lrey — Fri, 16 Oct 2020 22:36:43 +0000

Summarizing your finance package can help to prioritize how your banker reviews your financing request.

We recently submitted a client’s financing request to one of the Lenders on our lending matrix. Our Lender Rep. said, “Holy cow, you guys are on top of it with your summary. Not many brokers make it this easy to review the package.”

We made it easy because the client provided us with their financials. The financials were comprehensive. It’s a multi-million dollar corporation and we’re at the early stage of presenting to the lender. We want to show something that’s easily digestible. We want to ease the process for the lender to give us a prompt review and tell us their interest in offering the financing.

Summarizing your financials is easy to do. When you have a lot of line items that lead up to one type of deduction or one type of income source, simply summarize it. Drop it down to as few lines as possible so the lender can do a quick review and say, “Okay, I see the picture here.”

The Lender doesn’t need to know the granular line-by-line details at this early stage; you want the Lender to give a fast review to gauge their interest. If the Lender expresses interest and offers a Letter of Intent for the financing, you can present the more detailed financials with your full loan application package.

For each client financing request, we write a summary statement. We present a one or two page statement describing some background on the business, the reason for their financing request, and, in bold, large font, the amount of our financing request.

Our presentation package for the initial Lender review is compact, yet complete. The “first glimpse” by a Lender is sufficient to tell us if that particular Lender is the right fit for our client’s request, or if we need to locate a different Lender.

Watch our Financing Fodder YouTube playlist to understand what you’re up against when applying for a business loan.

Download your “Homework”. You’ll thank us later

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We Anticipate Problems to Create Solutions

lrey — Wed, 19 Aug 2020 14:43:26 +0000

Our Process Anticipates Problems, Creates Solutions

The good news is that Banks are lending again on a limited basis for non-disaster loan requests. The bad news is that the loan products are limited and the underwriting guidelines are very, very restrictive.

Many industries/businesses are excluded from loan programs. Banks simply cannot determine yet the viability of the businesses to survive the pandemic. Risk is too high and thus doors to the lending vault are tightly shut.

Today we spoke to a Bank on four different loan scenarios. Each of these businesses has challenges on their loan applications of different sorts, whether it’s credit, cashflow, type of business, COVID-19 impact on the ability of the business to earn income.

In the hour-long conference call with the Bank, thanks to our qualification process here at Aurora Consulting, we easily addressed the Bank’s concerns and answered their (often) difficult questions as they assessed the risk on each loan scenario. In three out of the four scenarios, we received positive feedback of interest from the Bank. While this interest does not guarantee a loan approval, this, in our experience is a giant hurdle we overcame.

The rest of it is the loan process.

We also spoke today with a prospective new client in a follow up to our initial call last week. This client seeks over $4Million in funding for a unique business, a business for which many Banks and Lenders do not provide funding due to their lack of understanding of how this business operates.

We had already identified a Lender for this financing request.

In our follow up call today, the prospective client indicated they would soon make a final decision on moving forward with Aurora Consulting to secure the financing. They also indicated they were working on their credit.

STOP. RIGHT. THERE….BEFORE we go any further. (Meatloaf medley playing).

A client should not “work on their credit” without proper guidance. Luckily, we provide that kind of guidance here at Aurora Consulting. While we don’t believe in credit repair/restoration, we do have decades of expertise with credit and we also know the appetite of commercial lenders when it comes to credit. Note: We have not yet seen this person’s credit.

Our process at Aurora Consulting includes running a credit report as soon as we sign a consulting agreement with a new client. We do this so that we can anticipate any issues that could slow down or prohibit the lending process. We do this upfront so that we can provide advice that leads to a positive result for our clients.

The same holds true for our entire process. We review all financial statements, business plans, marketing plans and any other pertinent items in the early days of working with a new client.

We do this to anticipate and resolve problems a Bank or Lender may have in the future.

When you apply directly to a Bank/Lender for commercial financing, these items, credit reports, financial statements and the like, are not seriously reviewed until the very late stages of the loan application process. By then the applicant has spent time collecting and submitting documents and spent money on application fees, appraisal fees and other associated costs.

Literally most Banks/Lenders do not run a credit report until the very final stage of the application process, weeks or months after the initial application. At that point, if a credit issue arises on the credit report, all those weeks and months of work are quite literally flushed down the toilet and the loan is declined.

Our role as your financing Broker is to review all relevant documents, including a credit report, in the early stages of your request, before the application, before we’ve even considered conversing, in depth, with a Bank/Lender.

That’s why today, we hit the mark with 3 out 4 of our loan scenarios getting the green light from a Bank to move forward to the application process.

We were prepared for every question and concern the Bank had because we’d reviewed credit and documents. We anticipated problems in advance and could converse honestly with the Bank on possible workarounds for those problems.

It’s what we do, because we are the business-owner’s advocate. We work for the business-owner. We would be remiss if we didn’t share with you that banks call us when they can’t underwrite the loan. So we understand their process.

Ask us any questions when it comes to business loans. If you want your business to survive, and THRIVE despite the worst crisis we’ve seen in our lifetime, please call us with your questions.

Email Curious@AuroraConsulting.biz

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Restaurant Financing Prepared For You

lrey — Mon, 16 Mar 2020 09:00:44 +0000

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The restaurant business is exciting, demanding, and, when it comes to financing, challenging. Few Lenders have the tolerance for the risk associated with this business category.

Busy restaurant owners, strangled for time with the myriad of activities necessary to build their businesses, can’t always find the time to seek out the best and the right financing solutions for working capital.

When a Restaurant owner finds they need capital, the lack of time, fear of rejection from traditional lenders, and unreasonable assumptions about their financial statements are combined and ultimately confuse the decision-making process. As a result, these business owners too often accept less than ideal financing solutions. If the solutions is a business loan, it may feature onerous credit terms. Or, forced into bad decision-making, they may take on new “equity partners” who invest capital and later decide they want a voice in how to run the restaurant.

We wrote a blog about when restaurant owners decide to bring in investors in our blog:
DON’T TELL ME HOW TO MAKE MY PIZZA!

We meet frustrated restaurant owners all the time in our travels. As Brokers at Aurora Consulting, our single mission is to search for financing solutions for our clients. We can slow down the decision-making by providing cogent information about business loan options. And we have access to Lenders who can provide business loans in a timely manner and with very reasonable credit terms.

We may employ our strategy of “cobbling-together” the financing in the short-term with a view towards creating a long-term financing solution. Because we work for the client, not for the Bank, we can explore multiple options at once to arrive at a satisfactory solution for your needs.

For example, in a traditional lending scenario, a Restaurant needs working capital for a new marketing plan, new restaurant fixtures, funding capital reserves for payroll for seasonal downturns, and new equipment for the kitchen. Traditionally, the Restaurant owner applies to the Bank for a single loan to fund these different needs.

At Aurora Consulting, we begin by reviewing the business’ qualifications for the traditional business loan. If there are challenges that prevent the Restaurant from qualifying, we’ll assemble different components to meet different aspects of the financing needs.

We’ll locate a Lender who specializes in equipment financing. That satisfies the need for the kitchen equipment. Next we’ll look for a single loan in an amount that fits the qualifications of the Restaurant’s financial statements. Then, we may bring in a Lender to provide a Line of Credit so the Restaurant can tap into in the event of a seasonal downturn to fund payroll.

One of our objectives is to help Restaurant owners preserve capital. In the event your business is flush with cash reserves, we can find a business loan at reasonable terms to fund your equipment, working capital or marketing expense needs. In this way, you preserve your precious cash savings.

You can review information about our restaurant program here or see our flyer here if you know a restauranteur who needs money to expand their store.

You can reach us by emailing Solutions@AuroraConsulting.biz. Or call us at 860-795-3808.

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Cobble-Together Business Loan Strategies

lrey — Mon, 09 Mar 2020 09:00:19 +0000

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When Linda Rey was building her Independent Insurance Agency, she had a mantra that goes back 20 years ago. We think it still applies: “There’s no immediate gratification in a long term Strategy.“

Different Solutions Cobbled Together.

When confronted with challenging circumstances for our clients to find a business loan, one of the creative solutions we lean towards is to bring together different financing solutions. What do we mean?

We cobble together financing solutions to come up with a higher number.

Maybe that number meets their original request, or maybe it only comes close, but maybe it gives the client sufficient capital to get started on a short term, “cobbled together” solution for our longer term financing strategy.

Our thinking is that it is better to start somewhere. Follow the yellow brick road.

What it is about us that allows us to cobble financing solutions together? No, we’re not talking about shoe repair! We’re Brokers and we work for the client, not the bank. That’s first and foremost.

Secondly, as a Broker, we have access to multiple products with different lenders.

An important consideration we’re mindful of when cobbling together the financing is to be mindful of the client’s longer term horizon. Depending on what’s on that horizon, there may be risks and challenges with certain types of short term solutions today, especially with something like seasoning.

When we talk about seasoning with cobbled-together-financing, we mean if you have a short term solution today that gets you over the hump and gets you started with your financing strategy, that short term solution may have to be seasoned for at least a year and showing on tax returns and other financial documents if you want to come in with a certain type of financing product on the other end of it.

So this is an important consideration because what solution we find today could affect your ability to access other finance products tomorrow.

We’ve discussed previously about how you should be preparing your financials with the thinking ahead of time that you may be securing financing. We think of ourselves as brokers but with a very long-term focus for our clients because we love business success stories.

Sometimes you have think short-term to achieve long-term goals. ~ Linda Rey

For example, we have a client who just purchased a commercial property recently with our assistance and our advice based upon cobbling together a short term solution on a long-term strategy.

This client did not have sufficient down payment to qualify for a commercial mortgage to purchase the commercial property. We referred that client to a colleague of ours who does residential mortgages. That colleague refinanced the client’s house and the client paid cash for the commercial property. Now we’re working on a smaller financing package to provide some working capital to decorate the new office space and do some much needed improvements and renovations on the property including a new roof. This is a good example of a successful cobble-together-financing solution.

In the longer-term, we’re going to to find a way to finance their commercial property to take out the short-term financing, and return the client’s primary residence back to a zero mortgage replacing everything with financing on the commercial property because tax wise, it’s a smarter move for the client’s business.

When you think something isn’t possible, call us or email us and make sure because you don’t want to wait too long for something that can be done RIGHT NOW.

Email us at Solutions@AuroraConsulting.biz.

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