- Don’t wait: There are a lot of options available, so take the time to consider the various options, consider future implications, build relationships, and tighten up the numbers.
- Have (and utilize) a business plan: Whether you’re considering the SBA or private investors, if you want others to share your vision, make sure to demonstrate the opportunity, track progress, and communicate effectively.
- Know your numbers: Not only your projected sales growth, expenses, and cash flow, but also know your potential borrowing needs. How will the money be used and how will it be repaid?
- Know your debt service coverage and other key ratios: This is a chance for you to avoid surprises when your application goes to underwriting. If you understand your leverage, liquidity, and quick ratios then you will be better prepared to negotiate.
- Strengthen your personal financial statement (PFS): A healthy PFS is more attractive to a lender than a shiny new car. Unless you have secondary income, your personal debt will be considered in a loan application. It also demonstrates repayment ability if the business is unable to service the debt.
- Be prepared to invest (and evidence) some skin in the game: Whether you bring a check to the table or you demonstrate “sweat equity.” If you want a bank to buy into your vision, you will need to demonstrate your own commitment and “buy in.”
- Build the right team: Professional advisors (CPA, Attorney, Banker), peer groups, and even a formal board should be considered. Build a successful team to surround you, ask for advice and key introductions.
- Good bankers make all the difference: They educate you, prepare you, and work with underwriting. Ask your peers for referrals. This is very important. An inexperienced banker can make or break your loan application.
- Shop around: ABLs, banks, credit unions, community development corporations. Look for the best lender who offers the best product at the best rate. Be certain to consider a variety of structures as well. Factoring might be a better solution to meet long term growth goals than a traditional LOC, for example. Financing needs change as the business evolves. Choose the structure, the right lender, and reevaluate as the business moves forward.
- Be resourceful: There are many good free resources out there. The SBA has a complete tool and lender match program. SBA.gov and Cultivateworks.org are both excellent resources.
In short, drive the process by being an educated borrower. Which 3 steps should you take now? You decide, pick any… they will all help you move in the right direction. If you have questions, please reach out.
Vice President of Sales
Capital Plus, a division of United Capital Funding Group, LLC.