What FRANdata Thinks

5 Things New Borrowers Need To Know

July 12th, 2018 by Sunny Jay Sabuero

In my more than 15 years of Commercial/SBA lending experience, I have gained some valuable insights in helping others to start and expand their businesses as a lender. They relate well back to some very wise sayings I have heard throughout my life. The 5 things new borrowers need to know will be structured around these sayings.

The saying “things seem too good to be true” is so true. Most Franchise/Start-up business project costs have some amount of leasehold improvements. Once the bids for Leasehold Improvements are received, if one Contractor’s bid is a lot lower than the other ones (you should always get at least 3 bids), proceed with caution. Most of the time, additional costs will surface at the end as a “change order”, meaning costs that weren’t expected or not disclosed. To watch out for this you need to review all bids side by side and make sure all the line items match up and nothing is missing on the lowest bid. You also need to ask the Contractor if they are willing to provide experience, financial information, references, etc. to the Bank (or to you if not financing your project). This way an analysis and background check can be performed. If they are not willing to provide this, then it is time to look for another contractor. This usually means they have something to hide since most reputable contractors know what Banks will request from them and are willing to provide it.

The other sayings about “putting your best foot forward” and “making a good first impression” are also true. It is best to wait to come to the Bank for a loan request until you have the equity saved (money to put as a down payment with some leftover money), quotes for leasehold improvements/equipment needed, and have a good solid business plan with a possible location in mind. Banks want to lend money to help people achieve their dreams but we need you to:

  • do your homework
  • save for your down payment
  • be in a good position credit and debt wise, personally

This helps to ensure a better outcome. All of this makes your chances of approval a lot greater, in addition to preparing you to take the next steps and knowing what you are getting into.

“You are driving the boat”. You need to understand your business and the market well and not rely too heavily on other’s opinions or help for this. You are the best one to look out for your interests and know your risk tolerance. You will be the best one to decide what kind of business you want to own and how you want to run it. However, it is good to get a lot of knowledge from others that have run businesses, especially if it is a similar business to what you want to do. You just really need to stay involved in your business for it to become a great success.

“No hesitation for representation” this a saying I came up with after working with customers for a long time. It is vital to the business to have a good CPA and good attorney. The right CPA is important to ensuring the business financials and tax returns are being done properly and the owner has a good handle on what is going on in their business. A good CPA is also important if you are purchasing a business to look through the seller’s company financials and tax returns. A good attorney is also needed when: purchasing a business to prepare or review the Purchase Agreement, negotiating the lease, reviewing the franchise agreements, and/or construction contracts. You will need them to help you set up your business entity documents too.

“Never too much of a good thing” is the last good saying I will use for the last piece of advice. I have seen a lot of start-up and small to mid-size businesses fail due to not having enough working capital. It is needed to support the ongoing needs or expansion of the business and/or to cover all pre-opening expenses of a business just starting. This piece is crucial when you are doing a business plan to make sure you have thought of everything that can occur. It is also crucial to keep the business going after opening. You need to make sure you have really thought about what amount will be needed when preparing the business plan and then retain money in the company on ongoing basis.


Michelle Wright, SVP/Director of SBA Lending at Integrity Bank, pulls from her more than 15 years experience with commercial/SBA lending to provide key insights that would help you and your franchisee successfully navigate franchise lending. Integrity Bank is a State Savings bank regulated by the FDIC and the Texas Department of Savings and Mortgage Lending examiners.

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