What do you need to know about small business loans before you apply?
A lot! You have a lot of options, and there are a lot of variables in the equation that determines whether you’ll qualify for the loan you’re applying for (or whether that loan is even a good fit for you and your business).
Last week I had the privilege of inviting Scott Blum, Vice President of SmartBizLoans, to join me in hosting a free webinar on the ins and outs of small business loan options. We covered the different types of loans available to small business owners, who the lenders are and where to find them, how to determine how much money you really need, and how to increase your chances of having your application approved.
It’s a complicated topic and there’s a lot of information to cover, and the webinar attendees asked tons of great questions—I guarantee you’re going to find a lot of value in the recording.
The full audio and slide deck are included above, and the full transcript can be found below:
The Basics of Small Business Loans
Scott: Hi everybody. I am happy to be able to give you some information on funding and loan options to help your business. I’m going to walk through some slides today. I think there is a process where you can participate via Twitter, or ask questions.
I’m happy to be interrupted throughout the process and to answer any questions that you have. Hopefully I’ll be able to add some value with some of the financing needs that your businesses may need.
As I’ve been working in this industry, as Sabrina started out said, I was the Chief Marketing officer of CAN Capital which is a big alternative lender and now I’m the Vice President of SmartBiz SBA Loans. Looking at the reasons why the small businesses like yourselves need money, it’s helpful to understand these categories and you’ll see yourself here in some different places.
Understanding this helps understand what types of loan products are right for you and what you should be looking at. We saw a lot of businesses that come with requirements for capital that I would say are unplanned needs.
Then there’s also what I would call planned needs. Things that you know are going to be happening and you need money for that, on the unplanned needs that your business has. There could be an emergency.
Many times your business has some unforeseen problem. Maybe you had an equipment has broken down or a restaurant has an oven that’s not working and if you don’t get that oven replaced, you’re not going to be able to serve any meals, for example, and that’s got a big consequence for the business. The other big unplanned need is a great opportunity. You may be a manufacturer or a distributor and you can buy the products that you sell for pennies on the dollar because one of your suppliers is having a fire sale.
You need some money really fast to buy that inventory and then sell it. Those two unplanned needs are more emergency and opportunity. Then on the planned side, I know many of you work with Palo Alto and BPlans on new business plans, obviously a startup.
For a new business, you’re going through that process, you’re planning and you want to get funding to get your business started. For those businesses that are already up and running, after that startup phase, you may have a working capital need, a permanent need that your customers pay you, let’s say in 90 days, any invoice come for 90 days for a product you sell but your suppliers need to get paid in 30 days and you have a 60 day gap.
That gap is always there, that’s what we would call a working capital need. You may have a planned equipment purchase. You might be a franchise that is required to purchase additional equipment, let’s say a restaurant that needs to get additional equipment. That’s a planned need. Or, you may have a project need, to keep that restaurant as an example as well, once it’s doing very well wants to expand into an outside patio. Build an outside patio project for example because they’re doing so well and they want to expand and they want to add another 20 tables. That’s a project need.
Then the last need that we see is really just peace of mind of businesses that need money, they want to make sure that if anything, any of the above opportunities arise that they have cash available. These are the examples of the needs that we see, these unplanned needs and these planned needs.
As you listen to the presentation, you probably already have that in mind of where you end up. That’s a good place to start and a good place that we look at: the triggers for the business loans. Then we look at what the small business financing needs. This has been my … our experience that most small businesses are kind of looking at these needs pretty much in order. The first thing that a small business, when they have one of those loan triggers, one of those planned needs or unplanned needs, they need somebody to say yes to them.
That’s obviously the number one thing that you’re looking for a bank and looking into your credit, you’re looking at a lender or someone to say “I’ll do this, this is fine. I can make the loan to you.”
Then the second need is you need the amount that you’re looking for. If your project is expansion it’s a $100,000 or is a piece of equipment is $30,000, whatever that trigger is, you need a financial source to say yes to you but you also need them to say yes to you for the amount you need.
The third thing that I found in all the businesses that we’ve worked with is, “give us the money in a way that we can repay it.” This to me is one of the big needs, is making that payment process similar to the way that your cash flow is coming into the company. Making it easy for you to repay it and continue to build your credit and repair your credit if your credit is in a tough place. Loan options have various ways that can get repaid, various weeks in commitments, and if you find someone who is going to say yes to you and can give you the amount that you want, you want to make sure that you’re looking at that repayment structure to make sure it works with your cash flow. Then a reasonable rate. If you get everything that works from a payment standpoint and the rate is good, and will let you retain as much profits as possible, then that’s great. And then I think last, what we find, if all those other needs can be met, can you find a process that’s fast and easy?
A lot of loans can take time; documentation process can be time-consuming. I think as you’re evaluating these different loan options based on the loan triggers that we talked about in this previous slide. You’re finding options to help you with those loan triggers. Take a look at these five different things and can see which one’s making most sense and work for you. Evaluate your loan options based on these factors.
Sabrina: Scott, I’ll jump in right here to just mention to you that a few people have asked whether you’ll be, throughout, covering both startup and existing businesses. We’ve had attendees who definitely seem more interested because they’re startups. “How do I tackle my financing needs as a startup?” but then there’s other people on the webinar who are existing businesses. I just thought I’ll give you a little bit of a view of what people are asking for as you go through your slides.
Scott: Yeah, I’ve got … That’s a great question. I will talk about both. I have more detail in the presentation, and I think that the attendees are going to be able to go back to this webinar and see the slides and we can probably send some of these slides out too, at some point, that is more detailed around the existing businesses but I will be touching on both new financing and existing financing. And obviously, with interruptions we can get into more detail about either one.
[inaudible]…it is to provide capital to small businesses. I just wanted to shed some light on just the reasons why it’s difficult making loans that are less than $250,000, less than $300,000. Why is it hard to do that? Why does the market have a hard time servicing this underserved market? First thing is that there’s a high failure rate. The small business market, new businesses, there is a chance that the businesses will not be successful.
That’s something that lenders take into account, understanding that there is a failure rate on the business side. The other thing is that small businesses are much more difficult to underwrite than consumers. There’s limited financial information, a lot of times it’s very limited, there’s limited audit balance sheets, income statements and a lot of times the small business financial statements don’t really reflect how the business is performing. Tax returns may also be not necessarily give reflection, so there’s quite a bit of time that has to go in to really understand the business and underwrite the business.
Sabrina: Scott, a quick question here, a quick question that’s just about what you’re talking about that somebody is asking. You might address it a little bit later on and you can go ahead and let us know that you will. Somebody is wondering how much of the loan process for startups is affected by your personal credit?
Scott: I think it matters. I think it depends on the type. First of all, all loans … most loans are influenced by personal credit. Not all loans weigh personal credit equally. Personal credit is a character indication of your intent to repay. When lenders are lending, they’re really looking typically at two things: What’s your intent to repay, and what is your ability to repay? Your intent to repay goes back to indications like credit. How consistently have you been able to make payments? For a lot of small businesses, their credit has been impacted by the recession, using credit cards to work with their business, things like that.
For a new business I think they’re going back from a credit standpoint and the intent to repay. Different loans will have different weight on it but I think that it plays a part in most loan decisions.
Sabrina you think that answers the question? Hopefully that does.
Sabrina: I think it does. Thanks. Yeah. I think that was perfect.
Scott: Okay. The cost: it’s much more profitable for traditional lenders to do a two million dollar loan, or a three million dollar loan than doing a $150,000 loan or $100,000 loan. That’s why for these reasons, some of the banks are and traditional financing sources are not as focused on the small business market. More and more lenders are now coming in, and alternative lenders and companies like SmartBiz, are coming in and making this process much more … Using technology to make the process faster and easier. Options are coming in to deal with this three issues and make it a lot easier to make these loans.
Let’s talk about the financing options for new businesses and existing businesses and maybe we can spend some time on this slide.
If there’s any questions just go ahead and keep interrupting me. For new businesses, obviously it’s a challenge to get funding. I think that there are lots of options available, though, that are coming up to meet the demand for new businesses. I think it depends on if you look at yourself, the new business might be a franchise owner that’s purchased the rights to a franchise and wants to open up some new locations. It could be a completely brand new concept and a brand new business that doesn’t have the backing of some type of franchise.
Traditional sources—what I tried to do is list some traditional sources here and I’ll touch on these—obviously getting money from friends and family is a really good source for any new business, and a traditional source for new businesses that are just starting out. A lot of the businesses that I’ve talked to get seeded with initial money from people that they know. That’s always been a really good source.
Angels and equity: there are businesses and angel funds out there in various parts of the U.S. and even international that are organized and are looking for new opportunities. I think that the team from Palo Alto Software, I think I saw some partners that are in this area that just focus on that early stage business. They look at the opportunity and they provide funding.
Sabrina: Absolutely, we work with Gust. But the other thing I would encourage people to do, it’s becoming more and more prevalent in communities across the United States is that people are forming angel groups and putting together LLC funds with a group of investors all together.
It’s very possible that in your own local community, you could get connected to Angel investors who all work together and put together a small fund and invest half million to a million dollars a year. Primarily they focus on local companies. It’s a really great way to get funded from an angel perspective, and also get introductions to that angel group. If you’re looking at a local community, you can probably find someone that you know who can introduce you.
It’s definitely something … Gust is a great place to go and check out and search because usually all the local angel groups are listed on Gust. Gust.com, check it out. They’re a great partner of ours, for the most part have been doing a lot for free for startups to give them access to angel investment.
Scott: Okay, great. Thank you. The third here for startups is the SBA. The SBA will provide loans to new businesses. They are a very big supplier, for example in the franchise market, for new businesses that are on the franchise registry. Let me just start with that as an example. I don’t know how many people out there on the webinar are looking at franchise opportunities, but if the franchise is approved for financing on the franchise registry, the SBA is a very good source for financing new businesses. There are various resources that are out there that can connect you to SBA resources to get funding.
Here you’re looking at the business lenders that are going to create a package based on your … they’ll look at your personal financials, they’ll look at your credit, they’ll look at the forecast that you have for the business. They’ll look at the historical business performance of that particular franchise and lots of loans get made through that process.
Sabrina: Somebody’s asking specifically if you can give an explanation of what that SBA 7A loan is. Who might qualify for an SBA 7A loan? That would be great.
Scott: SmartBiz, the company that I work with, is an SBA lender. We do not focus on this market, the new business market, but SBA 7A loans are the main working capital loans that essentially represent of that 80% of the loans that the SBA makes.
An SBA loan that’s guaranteed. It’s made by a lender like a bank or credit union but it is guaranteed by the government. That guarantee by the government enables the credit unions in the banks to make loans more aggressively. The qualifications for those loans are broader because of that government guarantee and they’re specifically designed to stimulate the economy and help businesses in the US.
The loan itself is typically a term loan. Very good interest rates, typically ranging anywhere from 5% up to 8% in interest, monthly payments. You can typically prepay them without a penalty. They’re very affordable. Long term loans up to 10 years, and it’s a good product. From a qualification standpoint, the banks are all going to have different qualifications. I mentioned that they’ll look at the franchise itself and in that case they’ll look at the forecast. They’ll look at the management of the business and who the people are that are applying for the loan, what their experience is. In some cases they’ll look at personal collateral. They’ll look and see, is there any additional collateral that can be used to finance this particular loan?
Credit is also important. Personal credit, there will be floors on what the personal credit will be. It’s much more lenient than you would typically see in commercial loans (commercial loans meaning loans by the bank and not backed by the SBA). The downside of this SBA process is that there’s a lot of documents and it’s very time consuming.
For these typical SBA providers, you’re looking at making sure you’re giving yourself a couple of months to be able to get that SBA loan done. That’s where SmartBiz SBA Loans has come in and dramatically reengineered that process, not for new business loans again yet, but for existing businesses where I’ll get to. SmartBiz went in and made the SBA process—and these are really affordable good loans—and automated it and got the funding down to about five or seven days. For here in this box, this SBA 7A loans, you want to make sure that you give yourself quite a bit of time to do it.
The 401(k) rollover and I believe also that I think that’s on the supplier for that does this as well. Or a partnership with a Guidant Financial? At least I think you do.
Sabrina: That’s great, yes we do. It’s one of those that people don’t know a lot about so I’m glad you brought it up. Guidant is a great reputable company that helps people figure out if the 401(k) rollover is even an option.
Scott: Yeah, I think and I’m not trying to push any of your partners, just to know that you guys have different examples of these suppliers. You can small business if you have a balance and a 401(k) or a retirement plan. There are ways to leverage those funds that are in your retirement plan and use them for startup capital for your business. There’s different players that enable that to happen. I’d say I definitely see a lot of businesses that are looking at SBA 7A loans, 401(k) loans as a way to get their business started.
I think the last one that I listed as an example here is peer-to-peer. Companies like Kickstarter, for example, where you go online and you list your project or list your business and what you’re trying to do. A lot of businesses have been pretty successful in going on to some of these peer-to-peer project sites like Kickstarter and you definitely hear the success stories of people coming in and providing capital and contributing capital to get those projects started.
Hopefully that’s a good overview of some of the options and some of your go to locations and options to get the startup capital to get your business started.
On the existing businesses, this is where I have a bit more detail. There is really three main categories that I’m going to want to go a little over today.
The traditional term loans is one option that a lot of businesses are look at. If you’re an existing business, how do I get a term loan and there’s different needs for a term loan relative to whatever called traditional revolving loans or revolving credit like a line of credit or like a credit card.
Those are kind of the two main options and then alternative options which I’ll get in to in more detail. I will say that one of the bullet points that I have here on the existing businesses which is a traditional revolving loans.
Credit cards obviously, personal credit cards, business credit cards are another way to get new business to start up. Definitely see a lot of businesses going on to their personal credit cards and that bullet point should be listed over on the left.
As another source of getting businesses up and running and getting businesses going and leveraging that personal credit card. Let me give you kind of an illustrative sense of what the market looks like for these different loans.
You get a sense of rates and how attractive and at which customers can typically get these different products. On the left axis is interest rates. Different rates of interest ranging a lush of 10% all the way up to 50% and higher than 50% on the left access.
On the bottom access, credit. Again this is just an illustrative using personal credit but business credit however you would think about from a credit standpoint ranging from the best at 800 and going on down to lower scores all the way down to 500.
These different categories and these lending options, that I’ve talked about and then I will be talking about all fall generally into different groupings based on this categories.
What you see in the bottom in the green. The bank commercial loans or the traditional lenders are really focusing on what I’d say the cream of the crop. They have reserved their products for the best credits, the best businesses.
The ones that have a much lower risk profile and they get the lowest rates also. If you’re bankable in a lot of these banks, they don’t fund startup so they won’t work at a startup business.
The banks will have pretty strict requirements on credit but if you can get into the bank box that’s good. The downside is that a lot of times the process is fairly time consuming and you may have quite a bit of paperwork to do.
That’s where that box lies. Into the right of that is from what we talked about with the SBA. That the SBA is designed to extend that traditional commercial banking box and push it to the right to make it more affordable for businesses.
Make it affordable for businesses that would not qualify for the bank term well. SBA also has rates under 10% and you can have more challenge credit and still apply. The traditional downside with the SBA is that the process has high documentation and takes quite a bit of time. Again, companies like SmartBiz are coming in and making that process really simple and really fast.
Sabrina: Scott, when you say the process can take a long time and you guys can make it simple and fast, can you give the audience a sense of the timing, what is really long and how can you guys help optimize, there’s lots of questions over how long does it take to get an SBA loan. What’s the length of the process?
Scott: I would say traditionally the … most banks for doing smaller SBA loans depending on the size. The SBA loan takes anywhere between I would say 30 to 90 days to get all the documentation, get the approvals in placed and get everything involved and getting an SBA loan.
If you are looking for a smaller loan, a smaller SBA loan that’s going to … the banks are primarily focused on doing SBA loans I would say $350,000 and above, the average SBA loan that was done last year was about … I think it was about $380,000.
If you’re looking for a loan and it fits right into that SBA box, you’re looking about a 30 to 90 day process. 30 days being very aggressive. More likely 60 to 90. SmartBiz is a company that … our company that focused on the smaller end of the market.
Starting with loans less than 150,000 and we’re funding deals in five days. We’ve automated the process from a prequalification standpoint to see if a business qualifies for the SBA loan in about 10 minutes.
We have been automated all aspects of the process to get the funding done the fastest as a five day turnaround time. That answer the question Sabrina? Are there any follow ups from that?
Sabrina: I think that was great. I think that answers the question great. Thanks.
Scott: Yeah. It’s a really good loan, again you’re down on this best box where the bank is and like SmartBiz and company that’s making it faster to get rid of that pain and threshold.
You still get the benefit of really good rates. The equipment leasing is also to the left. Sometimes those rates are … they can go down to 10% or lower than 10% and go a little bit higher depending on your credit profile.
Equipment leasing is a product that allows you to purchase equipment. It’s collateralized by the equipment and you have traditional lenders doing that as well as some alternative lenders.
Bank and credit cards both consumer and business. Probably this red box is the number one source of what businesses are using to finance your business. Definitely for existing businesses.
Credit cards are very popular, credit cards have a lot of cases that are more difficult to get these days than they were from the bank crisis. You’re still looking in around the 720 scores.
If you will typically from a credit standpoint so they still can be a little bit challenging to get. These purple boxes, I’ll talk about these for a little bit. There are … on the top, before I get to the one in the middle.
The company that I worked for previously before coming to SmartBiz is a company called CAN Capital. What has happened with businesses in CAN Capital as an example.
Have come in and provided these merchant cash advance or daily payment products for businesses that are more challenged from a credit standpoint and are not bankable today.
Essentially they are supplying loans with durations for six months or 12 months. You’d pay the loan back on it or the advance on a daily basis. It’s automatically taken out of your account either a percentage of your sales or a fixed amount.
These rates are much higher but the benefits of the business is that they get the capital that they need and very well documentation and they get funded very quickly.
Many times in a couple of days new alternative lenders though are coming into this middle part of the market where there was a void that for businesses that can’t get banked and I’ll use my cursor here, I should have been using that to make it clear to everybody about which I’m talking about.
These new alternative lenders are coming to the market that are providing term loans, one to three year, monthly payment where these are shorter terms which means higher payments and daily payments.
More companies are coming in here and providing one to three year term loans at more affordable rates. Better credit is required, business is typically have to be in business for a couple of years.
That kind of gives you an illustrative market of what the market looks like. Again, this area here where the banks are playing, SBA, standing at time consuming but more companies coming in it’s going to make it that much faster and easier like SmartBiz, banks and credit cards, good options if you can qualify for them because they revolve in credit. These traditional alternative lenders that are daily payment and then these new alternative lenders coming in that are doing term loans.
One to three year term loans at more affordable rates. Okay? I’m going to go here and talk a little bit more in detail about some of these different loan options that I just covered.
Again I think that there’s a lot of detail here, I’ll talk at a high level and pause and answer any questions that you have. You can also go back to the webinar and look at these slides in more detail if you have more questions about them.
The bank commercial loan, these are traditional term loan options for businesses. The bank commercial loan is a really good product for a long term … as a long term maturity, low affordable rates can take quite a bit of time though to get the loan. These loans are really good for people that for businesses that have been in business for a couple of years, they’ve got good credit, higher annual sales.
Rates typically around five to 7% and typically the banks are really focusing on larger loan amounts. For a bank SBA loan, for those businesses that don’t qualify from this credit standpoint.
The SBA will extend that credit to a lower credit limits. They’re a little bit more flexible in some of the underwriting, not astringent. You still can get these rates that are a little bit higher than the bank commercial loan.
Again the banks are typically looking at are higher loan amount, typically over 500,000 from where their goals are, they’re not trying to do the smaller ones. The equipment leasing.
These are typically the loan maturity is going to max the equipment or the asset that you’re purchasing. The rates really depend on the credit of the particular credit of the borrower and it’s got collateral by equipment.
If you’re buying a truck or you’re buying an oven for the kitchen or if you’re a physician and you’re buying medical equipment. Typically a good option if there is a lease option for this type of loan and there’s various companies like that capital and also the banks that are in the Smart pick.
The thing that all of these share is these are term loans, their monthly payments, six month repayments so as you remember I talked in the beginning about the importance of looking at the cash flow and how your cash is working.
These monthly payments that have longer terms, the longer the term, it’s kind of like a mortgage, a 30 year mortgage has a lower payment than a 15 year mortgage or a 10 year mortgage, the longer the term, the more affordable the payment. Now then there’s other … the other product we generally look at is the revolving credit loans. These products are not fixed. They’re revolving.
You can draw down on the amount of money you need when you need it and you can repay the amount that you want to repay and you can repay a minimum amount.
The good thing about these revolving credit lines or credit cards is they give the borrower a retail of flexibility. A bank line of credit allows you to draw down money when it’s needed.
The loan or borrowing cost are pretty low but again really good for these uses I talked about earlier whether it’s an emergency or an opportunity or you have working capital. This is a good flexible way to be able to draw down on that money on the repay as you get the cash back.
More difficult to get from a bank, a revolving line, typically looking at larger amounts and the raise vary but it can be as low as 4%. The payment is minimal, that minimum payment that you can make each month.
Another option actually I forgot, another option that some businesses could even use for startups as well is a home equity line of credit. One of the things that we saw in the financial crisis obviously, the housing crisis going up, home equity loans going tapped, businesses, using their home equity to finance a business’s quite a bit. This was a great source and I think that this is one of the big reasons why businesses had a big credit crunch.
This big available part of the credit market became unavailable. There is this opportunity to as home values rise and you can access a home equity line of credit.
That gives you a great deal of opportunity to take those funds even though if they’re from your personal assets and provide a funding for your … We’re even in many cases a personal credit card, it’s another very traditional way to get financing.
The amount is typically lower, it could be 5,000 to 25,000 and you’re looking at rates between 14 9 all the way up to 29 9 from a credit card standpoint. It give you the flexibility of lower payments.
They’re pretty good options for financing the business. This is on the revolving side. Two options here that I did mention very clearly on the startup are these two then on alternative funding options. I just want to give you a few examples of some of the companies that are coming in on these alternative areas.
The first one is our company SmartBiz. We’re doing a SBA loans. Long term rates with very short rate … long term maturities which equate to low payments with low interest rates from six to 8%.
Pretty easy to apply and very fast funding so you can get qualified and in about 10 minutes and you can see if you can actually get funding for your business in as fast as five days.
Let’s see, credit, the time of business needs to be two years. You can borrow the money for generally most credit needs, focusing primarily on working capital for the business, we’re not doing business acquisitions.
Working capital related. Good credit but it’s not as high as what we talked about in the bank and a minimum of 600 from a credit standpoint. No minimum sales from the sales standpoint.
Is this affordable? For example if you have a $25,000 loan that you borrow, it’s about $300 monthly payment, pretty affordable product. Another company that’s in the middle that we talked about that are doing term loans.
It’s a company called deal struck and there are several other companies that are in this market along with deal struck. Medium term in terms of about one to three years.
The rates are in the teens, 14, 18% rates. Monthly payments, again easy to apply and fast funding so you can get your funds here and also about I would say probably three to five days.
These are targeting businesses that have been in business for one year, good credit, also 600 minimum but they need to see annual sales of about 100,000. Again these rates, they range from 6 to 29%.
I think they’re hovering mostly in the mid-teens. Another company that we talked about on the daily repaying the products is a company called OnDeck. Their products have the shortest term and highest rates.
If I go … I’ll go to the … one example of a payment would be at the bottom but very high approval rate so they’re looking at businesses that are the most challenged to get credit, also a very easy application process. Fast funding, all these options you can get funding in I would say a week. The payment is made where this are monthly payments, these are paid daily.
This is best for short term credit needs, time and business about a year but the payment if I go down because I said that the payment, the terms are shorter. You could have where SmartBiz is $25,000 aim at 303.
The payment from a company like OnDeck could be about 2,500 and that would be paid daily for about 12 months. That gives hopefully … I know this was a little more detailed that Sabrina asked me to go in to.
I apologize about that Sabrina but I wanted to be able to give everybody a little bit of detail about some of these different options.
Sabrina: No problem.
Scott: I think that’s it.
Sabrina: Absolutely, no problem. There are a lot of questions so we’ve got about 10 minutes here. There’s definitely a lot of questions from people surrounding the issue of what happens if you try to go out and get an SBA loan and SBA 7A or any other type of business loan and you feel like you have the things you needed to have and you get rejected.
What next, what do you do, how do you figure out whether you should still go back and apply for additional type of loan like where do you go from there and a lot of people want to know sort of in different various forms of that question and answer to that.
Scott: Yeah. I would say that we have … it’s funny, I look at the market, I’ll go back here. Can you see my courser Sabrina as I’m doing this? You see it on the screen?
Sabrina: Yes we can see it.
Scott: Okay good, I wasn’t sure. You see a lot of borrowers that say I’m going to start here and if I can’t get this, I’m going to come here and if I can’t get this I may … you’re kind of going up this ladder if you will of where do I go and I don’t want to be here so I want to keep going down here.
Does that make sense? If you’re in this box, let’s say you’re trying to get an SBA loan. You have to understand from the lender or the lending source, why did you get the climb?
What can you do to repair for whatever reason that you were declined? If it was your credit, if it was your cash flow. If it was the fact that you may have had a bankruptcy in the last year or the last two years that doesn’t fit their box?
You may have to … the first thing I would say, tell me why, make sure you understand it so if the lender said well we can’t have bankruptcies, we can’t have an unresolved bankruptcy or bankruptcy filed in the last …
I know that I have to wait that time moment. What other lenders can I go to that don’t have that requirement that I could get funding and once I’ve successfully gotten funded from those lenders that they may be here.
Or you may have to use your card here or you may have to come here. Can you get that, fix that issue and then move back down here.I almost thing that first understanding, why did you get declined.
Then going back and understand what it is you need to do to get the path to remove that issue and then see if you can get some type of bridge financing. These companies can get bridge year to where you need to get to until you get the financing that you need.
As far as the startup, for a new business, that is a little bit tougher in certain cases to be able to repair that issue because some lenders just say we don’t fund to this franchise or you don’t have collateral or so.
I really think it’s looking at what’s that declination reason and then how do you repair it and then what’s the interim path you take to get back and represent yourself. That makes sense Sabrina? That answers the question?
Sabrina: I think that definitely answered the question. Another related question is not so much … the first one was what do I do if I get denied, the other one is a lot of people who are startups, they’re less than two years old and just struggling to figure out.
What do I do, I don’t have two years of financials. I know you’ve talked about startup versus ongoing but there’s so many questions about it, I thought it was worth circling back and touching upon that again.
If you’re startup, you have no history and your financials, can you give them an SBA loan? Does it matter if you need it for an asset versus just operational to run the business? If you can get some guidance, that would be good.
Scott: You can get … you have all of these options for me, you can get an SBA loan for your business. I divided it again between franchises and non-franchises. I think the SBA is very active in the franchise market for any new businesses that have never operated before that.
Want to open up a franchise and be in financing. The SBA is very active there. I do think for startups also there are sources within the SBA that provide funding for startups.
I think going to some of the … I don’t know how familiar everyone on the webinars with the SPDC’s of the small business development centers that work with the SBA.
They are credit counselors that are in every state. They help businesses with their business plans. They also have access to lenders that can help with new businesses.
SBA lender specifically so I think that’s a good source too to go through for those new businesses. You can get SBA loans. The SPDC’s are good resources. Add more different options that you work with too. That can be very helpful in that arena.
Sabrina: Yeah, I mean I would just echo, the small business development centers as a whole are very helpful. They are funded both at the state level and from the federal government under the SBA, the small business administration.
They are required to give you some level of free support. They do also have things and services they charge for. Pretty much anyone can call up an SPDC office locally and setup a meeting and get help through the SBA loan process.
That being said, I know there’s been people in this webinar who have asked or who said … the SPDC wasn’t really helpful. It is a large organization with 900 offices and one to 20 people per office.
It’s possible that you may have an interaction that’s not super positive but there’s lots of SPDC offices. You could reach out and try to work with another SPDC office or another SPDC officer because generally they do have really good information.
IT’s definitely a place where I feel like you can at least go and start to get an assessment of, can you get financing. The other question that people had in the last few minutes is kind of two questions but I think you can answer them together.
There’s a lot of questions about how much money do I have to have down on my loan. A lot of confusion over does it work like house loan works where you have to put a certain amount down.
Then there’s a lot of questions about at what point does a small business get to rely on their business credit versus personal credit and personal assets?
Scott: Let me just give an answer for … first question, there’s not concept of a down payment. It’s not like a 30% of your house, down payment on a house or anything like that.
There’s no money down that you need to get the loan. What was the second question again Sabrina?
Sabrina: The second questions was surrounding, at what point do you get …
Scott: The credit.
Scott: I actually don’t … I think your personal credit is … if your business is very strong. Personal credit is never going to be the sole factor that is going to drive credit decisions.
It’s almost going to be something because it goes to your intent to repay. Is your business very strong? This has quite a bit of collateral, personal credit is lower. The bank or financing sources are going to look at all these different factors.
With some of these loans like some of these alternative lenders OnDeck, I give an example. Lower credit, there’s definitely capital options available with businesses that have lower credit.
Absolutely. If your business gets stronger, it’s a hard question to really quantify but certainly as the cash flow and the history gets there your personal credit becomes less than a factor. It depends on every bank and every decision maker.
Sabrina: Okay great. The line asked question that seems to have popped up quite a bit here is one concerning if I’m purchasing an asset like heavy machinery or a building or land, does that make a difference, does it make it easier to get a loan versus a loan for operational expenses or just getting your business started.
Is there a difference, is it going to be easier if I’m actually getting a physical asset that I can put against that loan?
Scott: What I would … the answer to that would be there are lenders that … I think it can be in many cases yes because you actually have some collateral for the loan.
For example the SBA 7A loan is not designed for real estate but it is, there is another SBA loan that is designed specifically for real estate. Lenders have and equipment leasing is very focused on purchasing equipment, the benefit of equipment leasing in a lot of cases is you have some form of collateral.
I think in some cases it’s easier, you have to just make sure that you’re getting the loan option that is consistent with the use of funds. Like I said some loans aren’t … like SmartBiz doesn’t do any loans for purchasing real estate.
Other SBA loans do that. I think it depends on the lender, what the use of funds are for and finding that specific and max the use of funds.
Sabrina: Great. I think that was really useful and answered probably 30 different questions that we’ve had. As we get to the top of the hour, want to definitely thank Scott and I want to announce our winner of our $15 Starbucks gift certificate.
Scott, I definitely want to let you know that it’s been a very active group of attendees with lots of questions which is always great. You always like to see that people are actually live on the other side and interacting.
Great job. Our #SMBloans winner is @roclsteel. Just been twitting throughout the whole process and just really engaged. Congratulations, we will be in touch with you on how to get our $15 Starbucks gift certificate.
I want to remind everybody that we will be sending this webinar out. It probably will take us until Monday or Tuesday of next week because we will produce the webinar, we will do a full transcription of it as well.
Then we will email it out to all of you who have been on the webinar and we’ll also add a list of all the companies that have been mentioned throughout; Gust.com, Guidance Financial, obviously SmartBiz and Loans.com.
In that follow up email, we’ll list out all the companies and resources that we mentioned throughout this process so that you have those in one handy email. Then I will also remind everybody that if you’re looking to write a business plan www.bplans.com free content website, we have over 500 full sample business plans available for you to take a look at as well as all kinds of resources on how to write a business plan. What is it?
Business plan outline plan look like. Different tools and suggestions that can help you get your business plan together. Again, Scott, thanks so much. Clearly, you have a lot of expertise that people want.
I’m really glad that we had you on. A lot of people want more so we’ll probably be in touch with you about scheduling more webinars with more information because it’s been a very interactive webinar.
You can see on the screen there. Scott’s pointing out his email and his phone number. You can reach out to Scott at firstname.lastname@example.org. You can check out Smartbizloans.com, all kinds of useful information and advice. Then I’ll also say that Palo Alto Software as a whole only partners with companies that we’ve done full due diligence on, we’ve done secret shopping on.
We’ve got references on. It can be a little bit of a dicey landscape in the small business landscape online. Don’t go just anywhere, there are sharks out there. SmartBiz Loans is a reputable, really good firm to work with. Check them out.
Scott: Thanks everybody, feel free to call me or send me a note with any questions. I will get back to you as quickly as possible and happy to stream events for giving you the opportunity to reach out and help educate your audience.
Sabrina: Great. Thank you very much. Thanks everyone. We’ll be setting up our follow up email Monday or Tuesday. Thank you.
Scott: Thank you.
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