Entrepreneurs looking to secure a business loan would be well served to follow the Boy Scout motto of always being prepared.
Proper preparation before approaching a financial institution asking for cash is the best thing entrepreneurs can do to boost their chances for success, says Steve Barry, assistant vice president-commercial banking for First National Bank of the Fox Valley.
“Having a business plan is key. It doesn’t need to be 200 pages, but it needs to be solid and spell out projections of income as well as expenses,” he says. “We want to make sure there’s been research done that this is a solid idea.”
Being well organized also is essential, says Maria Young, senior business consultant with Prospera Credit Union. “When entrepreneurs come in and have papers that are a mess, it can get hard. It’s also important to have the basics down for your business and some sort of plan, even if it’s a basic one you put together using an online template,” she says.
Young will refer clients who come in without business plans to SCORE, E-Hub and Urban Hope in Green Bay or Fox Valley Technical College’s Venture Center. “We have a lot of great local resources available,” she says.
While the TV show “Shark Tank” is popular and celebrates entrepreneurship, Barry says it doesn’t send the right message about how businesses get funding.
“You just can’t stand in front of us and make a pitch without any supporting information,” he says. “We need to see you’ve done your research and that this business has a good chance of succeeding.”
Beyond a solid, well-organized business plan, lenders also look at the background of the person asking for the loan, Barry says. “Do they have experience in this industry? What has been their career so far?”
Nate Kok, vice president of Hometown Bank in Fond du Lac, works with entrepreneurs on finding alternative financing sources for their new business.
“We also incorporate creative financing options and programs that offer additional protection or benefits to the borrower,” he says. “Our view on a financing package places the long-term protection of the client above that of the bank.”
Kok says it’s also important for entrepreneurs to have their own financial house in order before meeting with a banker. “The best indicator of how a company will handle its business affairs is how well the individual business owner has managed his or her personal credit in the past.”
Tim Taffe, senior vice president of commercial banking for Thrivent Federal Credit Union, says entrepreneurs need to consider any problems their businesses might encounter. “Besides looking at the opportunities for success, it’s also important to thoroughly look at any risks and how they would deal with them,” he says.
Entrepreneurs should come in with a clear idea of what they want. “The question shouldn’t be, ‘How much will you give me?’ Rather, it should be ‘I need X amount of money so I can do this — and then lay out the plan,’” Taffe says.
The Small Business Administration (SBA) has made several changes in recent years to make it easier for entrepreneurs to get funding. For example, if a loan is below $150,000, the guaranteed loan fee of 3 percent is waived. With SBA loans, the government guarantees repayment of a portion of the loan, which makes it more attractive to financial institutions.
“A good banker can help a business owner get through the SBA process as long as you qualify,” Barry says.
SBA loans have long-term rates, longer amortization periods and lack balloon payments that a conventional loan may have. Those qualities make them more attractive to small business owners, Barry says.
But Young says SBA loans may not be for everyone. “My best piece of advice for entrepreneurs is to start small and not go too deep into debt. You can look at other options. Maybe you just need a line of credit or a loan just for a piece of equipment,” she says. “Build up slowly. You need to walk before you can run.”
Business owners also shouldn’t be afraid of shopping around and meeting with different lenders, Taffe says. He says lenders specialize in different areas and if an entrepreneur is thinking of a car wash business, then she should try to find a lender that has worked in that area before.
“Don’t think all lenders are the same,” Taffe says.
Another piece of advice for business owners is to look at alternative funding sources, such as revolving loan funds or private investors, Barry says. “If they can come in to a meeting with us with some of that information, such as, ‘I talked to the Outagamie County Revolving Loan Fund and I can get X,’ they definitely have a leg up,” he says.
The good news for entrepreneurs is that lenders have money to borrow and the constrictions the market felt after the 2008 financial collapse have eased.
“The desire to lend money to businesses is definitely stronger than it was two years ago and that was stronger than it was two years before that,” Taffe says. Barry agrees.
“There is more interest now, but it’s not back to the very open purse strings of how it was before 2008. I don’t think we’ll get back to that point, but we are moving in the right direction and good business ideas are finding funding,” he says.