SBA approval recent lack of income

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by a searcher from University of Hartford
in Maplewood, NJ, USA

3yrs ago

SBA approval recent lack of income

As of the first wk of July I will be leaving my corporate job and entering into a full time self funded search. While I’ve accounted for cost of living expenses I’m curious if SBA lenders will make it much more difficult to approve as there will be no personal income for several months before the business is found to buy.

Also, my wife does not work due to raising our 2 young children and it’s unlikely she is going to be able to go back to work to show spousal income.

My question, given this scenario do lenders disqualify this type of profile or it’s a non issue? — assume personal credit is good, assets, long stable work history etc etc

Last question since the company I worked for laid me off due to reduction in force I may qualify for unemployment. Is this a red flag if I enroll to lenders?

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reply by a lender 2yrs ago
from University of Missouri in St. Louis, MO, USA

The analysis for the bank will include new salary for you so this shouldn't be an issue. The unemployment income also wouldn't be an issue. If you are relocating for an acquisition though, you would have difficulty getting a home mortgage so just keep that in mind.

reply by a lender 2yrs ago
from Eastern Illinois University in 900 E Diehl Rd, Naperville, IL 60563, USA

I agree with most of the comments already made. We are a Commercial Loan Brokerage Shop and we work with over 500 funding partners including over 50 SBA funding partners. We have borrowers that are searching and currently out of work purchase all of the time. The only issue you are going to run into is showing enough cash flow in the business to support not only the business debt service but also your personal debt service. The SBA lenders will need to make an adjustment for your salary and what is needed to support personal expenses from cash flow. We can assist you in figuring out the minimum they will likely need to adjust for in advance so you know as you look at business and run cash flow models. Although it can certainly be a credit enhancement to have outside income from your wife that helps cover personal expenses, so long as you are buying a business with enough cash flow to cover your personal living expenses and to support debt service, this should not be an issue.

I often see CIM's where the seller's salary is fully added-back to adjusted EBITDA and no adjustment has been made for a new seller salary. Whether you intend to run a business yourself or hire someone to run it for you, there is a cost for someone to do that work. You might find it harder to get a deal done where the seller and broker want to add all of the seller compensation back without adjusting for a buyer / manager salary, but if you find a deal marketed the right way or a seller that understands the need for the buyer to draw a salary, the deal should work with your new salary. I can be reached at redacted should you have additional questions.