A CPA practice ready to pursue a growth strategy will probably need some degree of outside funding. And since most CPA practices view themselves as small businesses, they may assume the best source is a Small Business Administration (SBA) loan obtained with the help of a local banker. While it may seem like the most logical approach, CPA owners who have been through the SBA process will probably tell you that if they had it to do all over again, they would have looked for alternatives.
A key reason is that CPA practices are different from other types of small businesses, and bankers tend to be uncomfortable with anything that falls outside the standard lending model. Most banks are geared towards making small business loans to businesses like retailers, manufacturers and construction companies that have tangible assets like inventory, equipment and real estate. But the value of a CPA practice is in its clients; specifically, in the future cash flow that will be generated by monthly billings. Traditional business bankers don’t want to assume the risk associated with trying to quantify that kind of asset.
Another reason is that the federal government has established small lending limits for SBA loans. Some programs allow financing up to $350,000 and others set a ceiling of $1.5 million per owner. Also, these loans require personal guarantees using your house as collateral and requiring your spouse to be included on the debt.
So what alternatives exist to traditional commercial loan or SBA financing? There are specialty lenders like us who are accustomed to making loans against future cash flow. We understand how a business like yours operates, so we can approach the underwriting with realistic expectations and an appreciation for the inherent risks. Additionally, we’re not held back by federal limits, so we can advance as much as $2.5 million to a CPA without requiring liens on personal assets or adding a guarantee from an owner’s spouse. Before you settle on SBA financing, be sure to consider all of your options.