In general, lenders do prefer not to lend a lot of
money for working capital. Instead funds can be provided
for inventory, to pay accounts payable or to repay debt.
SBA guidelines allow the lender to consider the total
project (including renovations, moving & closing
costs) in evaluating the loan application. Consider
the following illustration:
| Use of Funds |
Total Funds |
Barrower |
Loan Request |
| Land & Building Acquisition |
$900,00 |
$90,000 |
$810,000 |
| Equipment |
$25,000 |
|
$25,000 |
| Inventory |
$25,000 |
|
$25,000 |
| Renovations |
$100,000 |
$15,000 |
$85,000 |
| Working Capital |
$50,000 |
|
$50,000 |
| Closing/Soft Costs |
$50,000 |
$50,000 |
|
| |
|
|
|
| Total Project |
$1,150,000 |
|
$995,000 |
| |
|
|
|
| Owner
Investment |
|
$155,000 |
|
--------------------------------------------------------------------------------------------------------------
Presuming that adequate repayment is available, in
this case the entrepreneur would receive financing to
purchase the land & building + equipment + Inventory
+ closing costs, using personal funds for renovations
and working capital.
|
