Obtaining a Small Business
Five Helpful Hints!
There comes a time in almost every
small business owner's career when borrowing money becomes necessary.
Often, funds are needed to purchase commercial real estate and
quit leasing. Sometimes, it's growth and the need for expansion
that fuels the drive for financing. Whatever the reason, there
are a myriad of financing opportunities available.
Many small business owners turn to
their bank for traditional financing only to find that financial
institutions often require substantial down payments and years
of experience in a business or field before they will consider
lending money. When this happens, an alternative is to turn to
the specialized small business loan programs and specialized
small business lenders.
Each year the Small Business Administration
(SBA) sets aside billions of dollars to assist America's small
businesses. Across the country, SBA lending has been an increasingly
popular method of financing for the past few years. According
to the SBA, in 1997, more than $8 billion in SBA loans were made
to small business owners. And 1998 is once again a great year
to let the government back your business plans.
SBA loans are available through participating
lenders across the country who review and underwrite each request
in accordance with their own specific credit policies and then
submit the application to the SBA for their concurrence and approval.
Some SBA lenders have Preferred Status with the SBA, which allows
the process to move much quicker.
Some small business lenders have also
developed their own specialized conventional loan products that
offer up to 100% financing and longer terms-both of which make
securing financing for many small business owners a reality.
So how do you secure an SBA or conventional
small business loan? The key is in the preparation and presentation.
Here are five helpful hints that should help make your trip to
the lender a user-friendly experience:
Helpful Hint #1: Get Your Financial
House In Order
Long before you approach a lender,
obtain a copy of your personal credit report. Check it carefully
for any inaccuracies or mistakes. Make certain that all accounts
are current and there are no outstanding judgments or liens.
If there is any derogatory information, it is better to be proactive
and prepare a letter explaining what led to the problems and
why the problem is not likely to occur again.
Next, gather all of your personal and/or
business records for the past three years, including: tax returns,
financial statements with schedules and attachments, interim
year-to-date financial statements and anything else that you
believe would help a lender. Neatly photocopy all of the documents
and prepare them for your presentation.
Helpful Hint #2: Realistically Define
Carefully evaluate your needs and purpose
for borrowing funds. Consult your accountant to help prepare
projected cash flows to determine your estimated future revenues.
Never tell a lender that you want to borrow as much money as
possible. Rather, you should have a specific amount in mind and
the paperwork to show why you need it and how you will pay it
back. Realize that you or your company will be required to finance
a portion of the project costs.
Helpful Hint #3: Recognize Your Strengths
Small business owners are traditionally
confident and optimistic while lenders are often received as
conservative and sometimes pessimistic. Identifying your establishment's
strengths and weaknesses will help you bridge this ideological
gap. Some of the most common weaknesses lenders find are: inability
to demonstrate repayment ability, insufficient collateral, lack
of management experience, insufficient cash injection and poor
personal credit. Depending on the severity of any particular
weakness, you can often overcome it if you are prepared with
a particularly noteworthy and compensating strength. Don't get
scared; just get prepared.
Helpful Hint #4: Start Early!
Although the process is constantly
being refined and getting faster, it can still take several weeks
to close a loan. Because of the wide range of business types,
sizes, methods of operation and levels of success, commercial
transactions are very different, and each is unique with its
own nuances and complexities. In most SBA transactions, the loan
request must first be underwritten and approved by the lender
and then reviewed and approved by the SBA. Once a loan is approved,
it can take from 30-60 days to fund. Borrowers can dramatically
speed-up the process by supplying all of the necessary documentation
up front. Again, be prepared and reap the benefits.
Helpful Hint #5: Work With An Experienced
Like any other type of lending, small
business lending is a specialty. Experienced small business lenders
know the products, know the parameters, know the eligibility
requirements and the documentation process. Smooth and quick
processing of loan applications is contingent upon working with
a commercial loan representative who knows the process and loan
Good small business lenders will be
able to prequalify you and your inn with a minimal amount of
information and without completing the entire application. The
entire prequalification process should take no more than a few
days. If it takes longer, it is probably indicative of the lender's
inexperience and you may want to consider finding a new lender.
Remember that prequalifications are not approvals but more of
a review and indication that, given the basic information reviewed,
it appears you fit the program.
Follow the above steps, and you will
position yourself as an innkeeper who is prepared. By being prepared,
you will make it easier on yourself and easier for your lender
to provide financing. In the end you should complete the process
with an excellent loan product and outstanding terms that are
tailored to fit the needs of your expanding operation.
- David W. Moore, Jr.
- Norfolk, VA
- (757) 640-7592
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