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    5 Replies Latest reply on May 26, 2008 2:59 PM by Adducent

    Need advice on SBA 504 loan.  Would you pad your numbers?

    Sako7STW Newbie
      We are currently about to apply for a 504 type SBA loan. We are trying to get our numbers together but not sure about this suggestion given to us by a friend that owns several restraunts. They said to pad your expense numbers. It will help cover the rise in prices during the application-closing periods. That I can deffinatly see as necessary. If you dont end up using the funds can you keep it for capital or put it towards making up the money you had to round up for your down? Maybe pay back some invetors? They did it to the point where it covered about 3/4 of thier down payment.

      Is this a common thing to do? It is hard as heII to come up with 70K, like we could end up needing when your just a common person just trying to get a start in business. I dont see to much difference between this and using a silent investor the bank doesnt know about. Little easier to swallow a little higher payment when your not paying as high of interest to an investor.


      Ok that aside, Once the loan is done, how do they divide the funds? Like were buying a building, the existing business, pluss adding another business to the building that will require many different suppliers, contractors, ect. to be paid. Do they give you the money up front or do you have to give them your reciepts or what?
        • Re: Need advice on SBA 504 loan.  Would you pad your numbers?
          LUCKIEST Guide
          Would you pad your numbers.

          How long have you been in Business?? Do you have an Accountant?? A Lawyer??
          You might need the Accountant if you are applying for a loan.
          You definitely will need a lawyer if you pad your numbers.

          How much time have you spent in Jail?? I do not know how things are done in
          Wyoming, BUT once you put numbers down on a loan form and sign the form,*
          you are stating those are the numbers. If the I R S Audits you, you have just
          told the IRS that you have committed FRAUD somewhere.

          Talk to your Lawyer, your Accountant, NOT FRIENDS. They are not going to jail in your place.

            • Re: Need advice on SBA 504 loan.  Would you pad your numbers?
              Sako7STW Newbie
              Ok well that answer's most of it. Wont be doing that and thats why I asked. But how do you compensate for price increases, this has me worried now!? Since we have put the numbers together, I have already got notifications from a few different vendors that the prices are going up and were not talking just a few bucks here and there. Also there is NO WAY to tell what shipping costs are going to be (very much so with the gas price insaneness) until they are about to head down the road. You cant have them going down the road till you pay for them, cant pay for them till you have the money. again were talking in the $25,000 range in just shipping so it can vary ALLOT. So tell me how you can be accurate to the exact dollar?????

              Also, Still don't know about how the funds are dispersed,

              Yes I have a lawyer (not at work on a holiday weekend) and no I don't have an accountant because I cant find one that has helped me make more money than what they cost me for their services.

              Are silent investors legal then?
                • Re: Need advice on SBA 504 loan.  Would you pad your numbers?
                  Sako7STW Newbie
                  When I am talking about padding the numbers, I am meaning expenses only, definitely not the income numbers or income projections.

                  We are buying an existing business that is on one floor of the building we are buying. Then adding a start-up business on the now empty second floor. Neither is a restaurant, my friends own the restaurant.
                    • Re: Need advice on SBA 504 loan.  Would you pad your numbers?
                      In your financial projections you want to allow for cost increases either based on something like the CPI or other inflation index specific to what you are buying. Your vendors for those products/services should be able to give you their outlook for future price increases for your planning purposes. Take that inflation index number and use that in your pro forma spreadsheet calculations. Before you present your pro forma's to anyone make sure that you formulas and calculations are accurate.

                      There can be a lot of moving parts to an acquisition and a lot of ways to structure/fund the buy-out. But all business closings and disbursements (from lenders, funding sources etc.) should be handled within escrow and handled by a competent business attorney (yours of the sellers).

                      If you plan to raise capital from investors your business plan should have the components of what is called a Private Placement Memorandum. Otherwise you could be violating securities laws and could be exposing your self to some serious legal liability if the investment does not work out. Check with a competent lawyer or professional to make sure that your plan is investor-ready before you present it to any private investors if you raise capital that way.

                      Dennis Lowery
                      Adducent, Inc.
                • Re: Need advice on SBA 504 loan.  Would you pad your numbers?


                  Is this loan for a start-up business or are you buying one? Whether to pad your numbers are not depends on a several things. It is better to construct your pro forma financials on somewhat higher expenses so padding should be OK there; but never pad your revenue projections or build up numbers that are not realistic or achievable. The way that I do it is to model the pro forma financials and build the business plan around existing information and data on the business being acquired. If it is a start-up then you have to establish a representative example of the financials based on similar restaurant operations.

                  It's very important to get your plan and projections put together accurately and in the right way. If your presentation to lenders/funding sources is not what they call "investor-ready" ... you will fail to make a good first impression and that is critical.


                  In general Business Plans are made up of the following:


                  • Executive Summary
                  • Market Opportunity
                  • Vision, Mission, & Objectives
                  • Management
                  • Business Strategy
                  • Competition
                  • Risk
                  • Financial Plan
                  • Capital Requirements
                  • Summary

                  Does your business plan have all the above components? Feel free to look at my profile to learn more about my experience and contact me if you would like some feedback on your plan.

                  Dennis Lowery
                  Adducent, Inc.