Learning from a Pro: 7 Questions with Tricia Hoffman at Gulf Coast
1 Tell us about your lending institution.
Gulf Coast Small Business Lending (a division of Gulf Coast Bank & Trust Co.) is a nationwide SBA Preferred Lender that thinks logically and moves quickly. We provide great terms and competitive rates to borrowers across a wide range of industries on loans up $10,000,000.
2 Would you rather loan on a business with heavy hard assets or on a business with a heavy cash flow and a lot of blue sky?
Well, both collateral and cashflow would be nice! However, if we had to pick one, Gulf Coast Small Business Lending definitely relies much more heavily on business cash flow. Unlike some lenders, we are very comfortable considering transactions with large good components. Question four discusses our approach in more detail.
3 What are some of the key attributes you look for when assessing a loan request?
For business acquisition transactions, we have found that transferable/relevant management experience is critical. We also look at the buyer's personal credit and the cash flow of the business (using standard addbacks). OF course, this isn't everything we analyze, but experience, personal credit, and cash flow are typically the top three.
4 This edition is all about cash flow lending. Some lenders call this "air ball lending" and tend to steer buyers away from businesses with blue sky. What is Gulf Coast Small Business Lending's policy regarding blue sky?
We commonly refer to the "blue sky" component of the deal as "goodwill." Gulf Coast Small Business Lending is definitely a cash flow lender. When a transaction has good personal credit, postclosing liquidity, and relevant industry experience along with excellent business cash flow (With standard addbacks and an adjustment of appropriate owner draw), we put no limit on the amount of goodwill that we will consider financing. We would rather rely on excellent cash flow (which, let's be frank, is what really repays loans) than collateral. It is our greatest hope that the excellent cash flow continues, the borrower pays the loan as agreed, and we never need to depend on the business assets to pay off our loan.
5 You have mentioned standard addbacks several times. What exactly are standard add-backs?
Stand addbacks would include such items as: interest payments, depreciation amortization, seller's compensation, and other expenses that will not continue under new ownership. Of course, we need to factor in appropriate compensation for the buyer since we are sure you want to be paid for all your hard work!
6 What are the most common reasons for an SBA loan to be denied?
SBA loans are denied for a whole host of reasons, but the most common are: business/buyer not eligible for SBA financing, buyers with insufficient management experience, poor personal credit histories, and/or inability to demonstrate adequate cash flow (with standard addbacks) to service the debt obligations of
7 What are some costs that are common with an SBA loan?
SBA loans include all of the standard costs associated with any commercial term loan (so collateral appraisals, business valuations, legal fees, recording fees, and the like). Although SBA loans are not assessed "points," there is an SBA Guarantee Fee that is comparable to "points." Borrowers should be provided with an estimate of closing costs during the underwriting and/or closing process. Note that in many cases, the closing costs can be paid with loan funds which reduces the borrower upfront, out-of-pocket costs.