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Nick Haschka, a former management consultant with McKinsey and Fortune 500 executive, wanted to start his own business—one that would allow him to set his own hours and, concurrently, spend time managing a growing family. That's why he decided to get involved with (and acquire) The Wright Gardner, a San Francisco commercial plant design, sales and leasing company. He purchased the business from its retiring owner and eventually grew it by acquiring other similar companies in the Bay area. To do all that, Nick and his business partners needed funding.
They applied, and got approved, for a $800,000 SBA 7(a) loan. These are a special type of loan that you get through a bank or credit union, and they’re backed by the Small Business Administration. Typically, these loans have max rates between 6.75% and 9.75% and can be used for a wide variety of purposes—anything from working capital to (like in Nick's case) acquiring or expanding a business. Many entrepreneurs prefer SBA loans because of their competitive rates. Getting approved, however, may sometimes be an arduous task. The U.S. government wants to make sure the money it lends out is going into the right hands. Therefore, the underwriting process can be extremely exhaustive.
To get better insight into what other business owners might expect, we interviewed Nick about his experiences—what the process looked like, what he learned and what key decisions he had to make.
This interview has been condensed and edited for clarity. If you're a small-business owner interested in sharing your funding story, tweet us at @ValuePenguin.
Tell us about how you got started with The Wright Gardner. How did you go about securing all the necessary funding?
Nick: I started by acquiring an interior office plant business in San Francisco called The Wright Gardner from its retiring owner. I funded the acquisitions with a combination of: personal savings, a home equity loan, an SBA 7(a) loan, funding from two business partners who are also close personal friends, and a loan from the seller. Since then, we’ve made a few more similar acquisitions to help us grow (Nelou's Greenery and San Francisco Plant Co.), and have funded those with additional capital from partners, business cash flow and notes from each seller.
The proceeds from our SBA loan were used to (1) buy out the previous owner, (2) to fund the working capital it needed for accounts receivable and accounts payable and (3) to provide a small cash cushion. The SBA loan total was a little under $800,000.
How much previous knowledge about small-business loans did you have before you sought funding?
Nick: I had no experience with SBA loans or business borrowing but had lots of general consumer borrowing experience. I also had a very experienced team of finance people helping me, including one partner with broad business borrowing experience, a broker with lots of SBA experience and an SBA lender who came highly referred through a business contact. Having the experience on the team was very helpful. We couldn’t have done it as quickly or efficiently without them.
We knew enough about the commercial finance market to know that the financing we were seeking would not be available through a normal bank and that SBA was more or less the only decent option to get a long loan term and a reasonable interest rate.
You ultimately applied for the SBA loan through Plumas Bank. What made you decide to go with this particular lender?
Nick: There are many SBA lenders out there and we could easily have gone with someone else. Plumas and the banker we used came highly recommended from business contacts who were SBA-savvy. We trusted that we would be in good hands.
How long would you say it took to gather get through all the necessary paperwork? Did you need to hire outside help?
Nick: We did this quite quickly relative to most people’s experiences I’ve ever heard of. Our business broker had done an initial SBA prequalification analysis on the business based on its historical financials before we sought financing, which eliminated some of the leg work that most borrowers need to do. We took about a week to prepare our loan application, including gathering all of our documents, which we did ourselves. We targeted a loan closing two-and-a-half months from our application date. My partners and I prepared our application ourselves, with the broker performing copy editing and quality assurance to help prevent us from making mistakes that would get our application rejected.
The acquiree was very organized, professional and fast. That made it very easy to get everything we needed promptly. It also gave us a high degree of confidence in the purchase, because that same staff was going to become our staff!
How long did it take you to close on your loan?
Nick: We closed the loan on time, putting the entire process at a little under three months. Once we got our conditional approval, we were in periodic contact with the underwriter as we sent in completed items. During the last week leading up to the closing, we were in daily contact with them as we closed off all the final checklist of items.
Looking back at the whole process, did you learn anything that you think would make seeking another loan easier?
Nick: In general, I feel like we did our homework in advance and avoided the biggest SBA pitfalls that make it a challenging process. However, I also feel confident that we could do another loan even faster than we did the last one. Going through the process helps you understand exactly what the underwriters are looking for, what steps you can take to complete work they’ll inevitably require in advance, and what things you can include in your application package that will help avoid snags. Overall, the process is designed to ensure you have a good operating plan and that you don’t run up against any obvious issues that will clearly put your loan in peril of not getting repaid.