How a SBA Loan Crushed My Business
5 things I wish I was told before seeking SBA funding.
OK, maybe it wasn’t quite that simple. It has been a few years since I closed the doors on my business I can finally look back clearly (and less emotionally) about where things went sideways. If you are considering a SBA loan for your small business please read on.
The partner bank you choose matters. Be your own advocate. Pivot before you get in too deep.
We had been at it for 3 or 4 years and things had really come together. Entirely self financed and not (yet) drowning in debt, we had a little breathing room to plan for our next steps. Our biggest problem was that we needed to scale to get the profit numbers where we needed them for long term sustainability. After doing the usual update of the business plan, pricing analysis, and long term projections we came to the somewhat obvious conclusion. We needed a sales and marketing team to get the word out to the masses. Slight problem. There was absolutely no room for 3 or 4 new FTEs on the books. We needed outside money.
As an internet based photo editing service, venture capitalists weren’t exactly knocking down our doors with huge Series A term sheets. The Small Business Association's loan products felt like the best fit. With a ten year repayment option and competitive interest rates we could make a go at things but not get buried in huge monthly payments if it all failed.
I asked around and found the “best” SBA partner bank in the area and made an appointment. I came in with the full plan and we all agreed SBA was a great fit. They sent me home with a mountain of forms and I got to work. After nearly 2 months of passing forms back and forth congratulations were in order. We got approval from SBA. All that was left were the funding details on their end. We would have our funding by March. Just barely in time to prep for our busy summer season.
So far so good. It was a huge pain but it was done. I thought. Our weekly checkins started to get moved or canceled. Who cares though? Just show me the money!
Pump the Brakes
This is where my mistakes start to compound. I’m a people pleaser. I happily thanked the bankers for letting me know an hour before our meeting that it was cancelled. I followed up with emails, not phone calls. I wrote things like, “let me have an update when you get time.” This called for a hard-ass and I didn’t see that until it was too late.
I finally got an update that felt positive enough. The bank was acquired by a bigger bank that also was known for its SBA loans. The only gotcha was that the new bank needed to do its own due diligence on my loan. No worries. It was all above board and was a “small” SBA deal at just over $125k. With some assurances from the bank that it would still fund soon I had to move forward with my hires. Busy season was approaching and we needed trained staff to make that happen. Knowing I would only need to float these added expenses for a month or two I bit the bullet and pulled in some short term financing and opened the flood gates on the company credit card. Bad Idea.
It is so clear looking back now. It just felt like a done deal. We were told it was a done deal. All that and I’m not exactly the most patient person in the world. Waiting another full year to grow this thing just wasn’t in my DNA.
Weeks turned into months and things were falling apart. There wasn’t enough money to fully implement our plans so we settled with half-baked cheaper options that surprisingly enough didn’t deliver. It was November and our planned funding date of March 1st was well behind us. Business was crazy and I just didn’t make the time to dig in and figure it all out. They still said it was coming and that we were just in the auditor’s huge backlog. The holidays came and we were maxed out.
Death of the Deal
The phone call came on January 2nd. Our SBA approval had expired. My friendly banker said it was no big deal. We would just need to apply with SBA again. Two problems. One: We were now buried in debt and coming into our slow season. Two: No assurance that we weren’t going to be in the same position on getting funded even if we were some how approved. I then did what any dreamer does. I pushed forward aimlessly for another 18 months before closing up shop, jaded and broke.
Lessons Learned — How to Not Let This Happen to You
- Hold the schedule at all costs.
- The bank is not your buddy. They are a vendor. Be kind but ruthless.
- Don’t spend the money until you have it. (Duh, right?)
- Know when to call it. Dump the deal. Close the business. Whatever it takes to not get buried in debt.
- Have an exit plan. Understand bankruptcy. Understand your options. Don’t mix up your personal finances just to get ends to meet.
