What is a Sources and Uses Table in Commercial Lending & Why do you Need One?
Lenders & the SBA will Require a Sources & Uses Table
By Jeff Bardos, CEO, Speritas Capital
November 3, 2020 – Connecticut
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When you’re acquiring a business or purchasing commercial real estate, a sources and uses table is a helpful way of organizing all the cash inflows and cash outflows. Capturing all your cash flows in one table minimizes the risk that you end up with a cash shortage at the close.
All lenders, banks and nonbanks, will expect a borrower to produce this table and to understand what qualifies as a ‘source’ of funds by the lender’s standards. Having this information on hand demonstrates your financial sophistication & thoroughness.
For an SBA 7a loan, the SBA specifically requires the borrower “to provide a pro-forma balance sheet reflecting sources and uses of both equity and borrowed funds.”
In the case of a business or commercial real estate acquisition, the "uses" or cash outflows start with the acquisition price, but also include transaction costs such as additional working capital needs, closing costs, legal fees, appraisals and loan guarantee fees.
Sources or cash inflows include your own funds, gifts, funds from investors, seller financing, senior bank loans and subordinated/mezzanine debt. Read more about types of equity sources acceptable to the SBA.
The sample Sources & Uses Table below shows the funding sources and uses for a typical small business acquisition which includes the purchase of a business and its owner-occupied commercial real estate.
Let’s break down the elements of the sample Sources & Uses Table above.
SOURCES of Funds Explained
Own Funds - Cash or other qualified assets that the borrower owns (money that is not borrowed).
Documented Gift – Cash from friends and/or family that is supported with a “gift letter” or other documentation that specifies that the money is not a loan.
Seller Note on Full Standby - Sometimes referred to as a seller carryback, this is a portion of the sale price that the seller essentially loans the buyer. To qualify as equity, the seller note cannot pay principal or interest while the SBA loan is outstanding. Other types of seller notes are acceptable as non-equity sources of funds. See our Equity Injections article for more discussion.
SBA Loan - Could be an SBA 7a or 504 loan or a combination of the two.
Questions? Schedule a call with the author, Speritas CEO Jeff Bardos, email, or call/text him at 203-247-4358.
USES of Funds Explained
One the important purposes of the sources and uses table is to make sure you've factored in all the costs of the acquisition.
Paying the seller is an obvious cost or use of funds, but there are several other transaction costs to factor into the sources and uses analysis.
Business vs. Real Estate Acquisition Price - If the acquisition includes both the purchase of a business and real estate, make sure you know how much you're paying for both. Lenders will want to understand these amounts because they help determine how much hard collateral is available and how much of the acquisition price is goodwill.
Working Capital - Sometimes it makes sense to borrow an additional amount through the 7a/504 loan or through a separate working capital line. A working capital line provides cash flow insurance and can help if the transition doesn't go as well as expected.
SBA Guarantee Fee - The SBA charges a one-time fee for providing the lender with a guarantee. This fee is passed on to the borrower.
Closing Costs - These include lender packaging fees, attorney fees, appraisal reports.
Creating a comprehensive sources and uses table helps borrowers think through all the acquisition costs and ensures that those costs are matched with sources of funds.
It minimizes the risk that you end up with a cash shortage at the close. Lenders, and the SBA, expect to see this table.
Speritas Capital works with clients to develop a sources and uses table, customized to a specific transaction. We're here to help you think through your funding source options and connect you with the right SBA lender.
Need more information on SBA loans? Check out our SBA overview page.
It’s hard to find a commercial loan broker with the experience you need to get funded, and who you can trust to give you honest answers. Our reputation and relationships with lenders is what makes us different.
Schedule a call with the author, Speritas CEO Jeff Bardos, email, or call/text him at 203-247-4358.
About the Author
Jeff Bardos, CEO, Speritas Capital Partners
Jeff has over 30 years of experience in the financial services industry. After graduating from the Columbia Business School, he joined the New York Federal Reserve Bank as a senior staff member in Bank Supervision, leading the Bank Analysis department. From the nation’s central bank, Jeff moved into the private sector, working at senior levels in commercial banking, retail banking and risk management. He has also played senior founding roles in several start-ups. Learn more about Jeff.
CONTACT INFO
Jeffrey Bardos
CEO Speritas Capital Partners
Call/text Jeff at 203-247-4358
Email Jeff with your sources & uses questions
Schedule a call with Jeff using our online scheduling tool.
Speritas Capital Partners specializes in complex credit, collateral and cash flow situations and we never take upfront fees.
Because Speritas Capital is a debt advisory firm, we have access to a wide variety of lending structures. We’re not beholden to any one lender or structure so we can use our creativity and experience to design a structure that truly fits the needs of our clients.
