Buyer experiences getting SBA loan with no current income

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by a searcher from Arizona State University - W. P. Carey School of Business
in Alameda, CA, USA

2yrs ago

Buyer experiences getting SBA loan with no current income

I'm getting somewhat conflicting information about how current income plays into SBA loan requirements/qualification when purchasing a business. I've been told that banks will look at your monthly obligations to calculate a standard cost of living, and assume an owners draw is needed to cover (minus any income). If it cannot, there will be issues. On the other hand, I've spoken with searchers who have received an SBA loan w/o current income.

Are there scenarios/ways searchers without an income have found success getting an SBA loan?

Thank you!!

**I am currently not working (little to no income) while I do a search + do not personally require my next acquisition to cover all my living expenses

1 Like

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reply by a lender 2yrs ago
from California State University, Chico in Indianapolis, IN, USA

Great feedback, this a great question because each SBA lender will calculate what they expect your draw needs to be a little differently, which can obviously change the projected debt service and thus that ever important debt service ratio. For example, I've seen some SBA lenders take your monthly expenses, add $1,000 per month per person in the household, multiply that by 12 and assume that's your required annual draw, while others lenders use a 50% DTI ratio for personal debt including average annual income taxes and monthly debt obligations, to calculate actual owner’s draw needed. The bottom line is most SBA lenders will add back the seller's salary or payments to themselves then turnaround and expense what they expect your draw needs to be, minus any outside income you might have, if any, of course .

reply by a searcher 5mos ago
from Thomas A. Edison State College in Tampa, Florida, USA

Okay, here's a follow up question. How do they evaluate my current DTI or how much does that matter? I own a handful of rental properties currently and if only 75% of the gross income is counted as income (I believe this is what the SBA does, as this is typical to account for vacancies, etc.), it would throw my DTI off. Some of the properties are owned in an LLC and my debt in this scenario is just the mortgages & my primary residence. Basically, is current DTI a factor in applying for an SBA loan?