Q&A: Analyzing Updated SBA Standards
In late 2019, the Small Business Administration (SBA) issued a new rule that would adjust monetary-based small business size standards to allow more businesses to be eligible for the administration’s loan and contracting programs.
Elite Auto Collision and its eight employees are classified as a small business. And, recently, EAC faced a dilemma. The body shop had been leasing a location for the past 15 years and all of a sudden was being forced to move by the owner. In the southern California area, renters are facing developing pressures because landlords are seeking to build more housing.
Sandra Baker-Assemi, president of Elite Auto Collision in El Cajon, Calif., had searched for a new location for the body shop for over a decade. One of her goals was to keep the shop’s DRPs intact, because roughly 90 percent of its business was coming from those partnerships.
Baker-Assemi first went through the Service Corp of Retired Executives (SCORE), a national nonprofit organization that counsels business owners and aspiring entrepreneurs, program. She met with a financial counselor and found out what business finances she needed to get in order so she could apply for a small business loan. About two years ago, the shop operator applied for a small business loan from the SBA. Through that process she learned small body shops could receive as much as $2 million.
The SBA adjusted monetary-based size standards by nearly 8.4 percent to reflect the inflation that occurred since the last adjustment for inflation in 2014. With the adjustment, about 90,000 more small businesses would be able to gain small business status and could be awarded millions in additional federal contracts.
“I think [the amount of work that goes into applying] is one of the principal reasons that so many shops seem to opt for shuttering,” Baker-Assemi says, “since this involves an intensive dive into all aspects of the business finances for several years running.”
Below, Baker-Assemi provides further insight on what shop owners need to know these days when applying for SBA loans.
How do you view access to capital for small businesses?
I think access to capital for body shops is the number one challenge for anyone who wants to start a small business. It could be an issue even for a family member like a son taking over for the father. When you ask the SBA about finding a bank that the organization partners with, they will give you a list that has more than 50 banks on it. My advice is to keep talking to as many people as you can. We ended up only submitting our loan petition to three banks.
Money is a big issue and, for some shops, simply investing in a paint booth and a paint booth permit could cost around $80,000. If a body shop wants to look into cheaper, affordable options for tools and equipment, that shop could end up getting in trouble with the local fire departments for violating safety codes.
What documentation did you need to provide to banks?
I sat down with a certified personal accountant (CPA) and discussed the situation. This is a very important step to do because, in order to request any kind of loan, your business and personal finances need to be straightened out.
One thing I was told to do at this time was to call the IRS and request a transcript of the last three years of tax returns. We needed not only our business tax returns but our personal tax returns, as well. We also gathered our profit and loss statement and an organized balance sheet for the previous three years.
We were leasing our previous body shop facility but wanted to buy for our next location. Since we were leasing, our tax returns and other documents helped to show the bank that my husband and I did have equity in the form of other houses. We also brought with us proof that we had previously been at a failing body shop and turned that failing business around to make a profit.
Why did you choose the type of loan you did?
We opted for an SBA loan with 10 percent down at a 10-year term. The loan is below 8 percent per annum. The loan interest rate has decreased since the SBA issued its new rule on small business sizes.
It took us five months to complete applying for the loan. The other bank loans we were considering involved 50 percent down and varying terms.
We got about $200,000 in a loan but I do know that small businesses can get up to $2 million from federal funding. We went to a small bank to get a loan because it was a lot easier to find a time to sit down with an advocate that could lay out all the options. The bank has to be affiliated with the SBA, however.
What has life been like since receiving the loan?
We moved into our new facility in August 2019 and today we’re making $1.3 million per year. We’ve established some improved business practices. For instance, we track our finances once a month to make sure we’re taking detailed notes on our statements like our profit and loss statement.
We were also able to move and keep our whole book of business. We kept all the same DRPs in the move. I advise other shops in a similar position to wait until you have a plan as to where you are moving before you notify your insurance company partners. We told them about two weeks before we moved facilities. The process was pretty simple once we had a location set. Most of the companies only needed us to send the letter from our landlord asking us to leave our old facility.
If you’re in a similar position, get on the Google list early with all of your website and business information including the physical address, business hours and location. Switching your business to a different location on Google maps can take up to four weeks to update.