NSBDC » Financing

Small Businesses Have New Non-Profit Sources For SBA-financed Loans

Ben Tedore — Fri, 05 Aug 2011 16:56:28 +0000

20 First Community lending organizations selected to start making loans up to $200,000 under new Intermediary Lending Pilot Program

Release Date: August 4, 2011
Contact: David J. Hall (202) 205-6697 Or Dennis Byrne (202) 205-6567
Release Number: 11-46
Internet Address: http://www.sba.gov/news

WASHINGTON, D.C. – Startups, newly established and growing small businesses now have a new source of financing backed by the U.S. Small Business Administration as 20 community organizations have been funded by SBA to start making loans up to $200,000 to qualifying small businesses.

Authorized under the Small Business Jobs Act of 2010, the new Intermediary Lending Pilot Program will provide direct loans up to $1 million to 20 community organizations or intermediaries in fiscal year 2011, which in turn will use those funds to help finance small businesses, mostly in underserved markets.

Designed to expand access to capital to small businesses and drive economic growth and job creation, the program will fund 20 additional community lenders in FY 2012. The program has an additional year of authority in FY 2013 subject to appropriation by Congress.

“The Intermediary Lending Program is an important new tool to support businesses in underserved markets,” said SBA Deputy Administrator Marie Johns. “Partnering with community lenders will increase points of access to capital for startups and businesses that have been disproportionately affected by the recession.”

One goal of the pilot program over the next two-to-three years is to assess the intermediary model as an effective tool for increasing lower-dollar lending to small businesses and startups, particularly those in traditionally underserved communities.

The first 20 community lending organizations funded by SBA to participate in ILP are:

Organization (Listed in Alphabetical Order) City, State
Ben Franklin Technology Partners Philadelphia, PA
Biddeford-Saco Area EDC Saco, ME
Business Finance Group, Inc Fairfax, VA
Central Minnesota DC Andover, MN
Clay-Platte Development Corp. Kansas City, MO
Colorado Lending Source, Ltd. Denver, CO
Cooperative Fund of New England Amherst, MA
Fresno County EDC Fresno, CA
Grand Central Texas DC Austin, TX
Grow South Dakota Sisseton, SD
Mahoning Valley EDC Youngstown, OH
NC Minority Support Center Durham, NC
Ohio Comm. Dev. Finance Fund Columbus, OH
Pacific Community Ventures San Francisco, CA
PIDC Regional DC Philadelphia, PA
Rural Nevada DC Ely, NV
Seattle Economic Dev. Fund Seattle, WA
ShoreBank Enterprise Group Ilawco, WA
TELACU Community Capital Los Angeles, CA
UP Business Capital Marquette, MI

For more information about the ILP program, visit the program website at http://www.sba.gov/content/intermediary-lending-pilot. To locate your local SBA office, visit www.sba.gov/about-offices-list/2.

For more information about all of the SBA’s programs for small businesses, visit the SBA’s Web site athttp://www.sba.gov.

The Reality of Lending

Bill Sims — Mon, 06 Dec 2010 17:37:11 +0000

The Reality of Lending – “The New Norm”

A feature article re-posted from the online edition of Nevada Business – The Decision Makers Magazine.

A Nevadan needs $120,000 to open a used sporting goods store but can’t get a loan from a bank. Either he gives up the idea or resorts to creative financing, if possible. In the end, he puts up $40,000 of his own money, gets his landlord to cover $15,000 of tenant improvements, and obtains a $40,000 loan from the state’s micro-loan lender and a $25,000 loan from a Florida bank.

“In that situation, we’re looking at four sources. That’s what we have to do,” said Rod Jorgensen, who is director of counseling for the Nevada Small Business Development Center (NSBDC) and helps small businesses find and obtain funding.

Lending to start-up, early-development and existing businesses is happening in the Silver State but far from the level it was at three years ago….

READ THE ENTIRE ARTICLE AT NEVADABUSINESS.COM

What NOT to say to your lender!

Judy Emerson — Wed, 24 Feb 2010 23:04:08 +0000

Here at the NSBDC, I spend a lot of time talking with folks wanting to start a business, and one of the very first things we get into is the reason for having to write a business plan. One of the main reasons – “Because a lender REQUIRES one!” Out of that discussion generally comes several other questions, so I’ve put some together here to give you somewhat of an idea of what NOT to say to your lender! In this period of extremely tight lending, it’s important to be as prepared as possible before approaching a lender.

“What do you mean I need a business plan? I told you what I wanted to do with the money!”

The first time you borrow money from a financial institution, they will want a full business plan that includes a description of your product/service, your experience (and education), your market and how you intend to reach it, a list of your team (CPA, insurance rep, attorney, marketing consultant advisors, banker, etc), and your operating plan and future plans. Lenders need this information as well as your financial information to make informed decisions.

“You need monthly projections AND financials—I gave you annual projections and you have copies of my income tax returns. Isn’t that enough”?

Realistic monthly cash flow projections with detailed assumptions provide the lender with a better understanding of how you anticipate the money to “flow” through your business. Cash flow along with the Income Statements and Balance Sheets are important to lenders, as they will compare your anticipated revenues and expenses along with your historic financials with national standards for your industry. If your financials are considerably out of range with national statistics, then you will need to discuss it with them. Which brings up another point – do you know what your NAIC (North American Industry Classification) number is? You may have more than one depending upon your business, i.e. you may sell plumbing supplies retail and wholesale, AND provide service. Each of these will have a NAIC code of its own. If this is the case, talk with your CPA if you have questions regarding this.

“Why do I have to come up 25% (or 30% or more) in cash? I can buy a car with 10% or less down.”

Business loans are different than consumer loans. Once the lender has loaned your business money, unless it is collateralized by land and buildings, the lender has little chance of recovering the money in the event of a foreclosure. This is also why the bankers require those parties with 20% or more ownership of the company to personally guarantee the loan. The lenders want to know that the owners will make every effort possible to repay the bank and if they don’t, the lenders will then go after personal assets.

“My product (or service) is so great that I won’t have any problems selling it. AND my product is so exclusive that there isn’t any competition out there!”

Lenders know that there isn’t a product on the market that doesn’t have both direct and indirect competition. It is much better to realistically analyze your market, identify your competition and provide explanations as to how you can successfully compete. Lenders feel much more comfortable lending money to business owners who have real knowledge of their market and how they can compete in it.

The ‘Six Ps’ of Small Business Borrowing in Tough Credit Markets

Bill Sims — Wed, 22 Oct 2008 23:35:00 +0000

Despite the current financial upheaval both in Nevada and throughout the nation, entrepreneurs and small business owners still need access to capital to start or expand a business. But, navigating the path from deciding a loan is needed to having the funds in the business banking account has recently become much tougher.

Not only have most all lenders tightened their underwriting guidelines in response to their own challenges in getting access to capital, many lenders are now only looking for outstanding business investment opportunities (that’s what a small business loan actually is). The challenge for potential borrowers is to position themselves and their business (or proposed business) at the top of the applicant pile.

Here are six Ps that will help ensure a loan applicant is well-positioned for borrowing success:

Perfect the Business Plan

Enough cannot be said about the value of a concise, yet thorough and well-written business plan. The many business plan template programs can help in this regard, but giving a business plan the personal (and localized) touch shouldn’t be ignored. The business plan should reflect YOUR plan for YOUR business, and state the case for anticipated business success in a compelling and straightforward manner.

Applicants should put themselves in the banker’s shoes as they perfect their business plan. What questions would you expect the plan to answer if it was your money being loaned out? Running a draft business plan past a trusted friend with some business background is advisable to cross check the vision of a business dream against the reality of the current business environment. Having historical demographic and economic data is nice…but including current, local data and explaining how the company plans to address current market conditions provides the banker a firm basis for a business plan, and not just an idea plan.

Bankers want to be reassured of two major things. One, that the business plan can show how the company can generate enough cash flow to pay back the loan, and two, that the borrower has a contingency plan to repay the loan if the business falters. Demonstrating both is essential in this current lending environment.

Pull Personal Financials Together

Those applicants who are just getting started in business should be prepared to show the banker several documents related to personal finances. These documents include:

•    2-3 years personal tax returns
•    Personal Financial Statement (all personal assets, liabilities and cash flows)
•    Banking statements for at least the most recent 12-month period
•    Any contracts or agreements that prove the basis for existing passive income (rents, royalties, etc)

For those applicants who are already in business, add any business tax returns from the last three years of operations. Keep in mind that when asking a bank to loan large sums of money for a business, none of an applicant’s financial history should be considered ‘confidential.’ Such a policy may seem intrusive and bothersome, but bankers are only trying to make sure the borrower is worth the risk the bank is assuming by making the loan.

Preview Your Credit History

Knowing what’s on a personal credit report before applying for a small business loan is a must for two reasons. First, it gives the borrower a chance to craft explanations (careful…not lies) for any entries that are negative. Also, it gives the borrower a chance to assess their current credit status and decide what steps they can and should take to improve their credit standing.

It makes little sense to approach a lender with an otherwise excellent loan proposal package if the borrower’s credit history is riddled with a constant stream of recent negative entries. Being able to explain bad credit entries from several years ago is different from addressing poor credit entries within the last year.

Borrowers with a recent history of poor credit would be best served by taking proactive steps to correct the situation before approaching a lender for a small business loan, especially given the current tight credit market.

Poll Family and Friends for Equity Injection

Lenders are now requiring even higher levels of personal equity injection into a business than they were a year or two ago. This is a direct reflection of the current economic situation we are all experiencing. Since most borrowers cannot personally come up with a 20-25% cash injection (or more, depending on the lender), polling family and friends to guage their ability to commit the needed equity funds is a crucial preparatory step before approaching a lender.

Related to equity injection is available collateral for the loan being sought. In many cases, lenders will want to place a lien on personal assets, including homes, especially if the proposed business assets do not adequately cover the bank for potential losses in case of a loan default. Deciding what is personally acceptable along these lines is recommended before approaching a lender to avoid any ‘surprises’ to the borrower, family or friends.

Prepare the Loan Package and Polish the Presentation

Making a good impression on a lender is vitally important in the current lending environment. Recommendations in this regard include making multiple copies of the formal loan package with Business Plan, Projected Financials (plus actual financials for existing businesses), Uses of Funds Statement (how the business will use the loan proceeds), Personal Financials, Resumes and other supporting documents (i.e. articles of incorporation, business licenses, permits, etc.). A professional-looking package generates perceived credibility for the business concept, and appropriately preps the banker for a verbal presentation of the business loan proposal.

Having a polished five minute oral presentation on the highlights of the business plan demonstrates to the banker that the applicant has a command of the major facets of the plan, including key success factors and potential challenges. Create a compelling presentation and then practice, practice, practice, especially in front of an audience! The final product should flow and sound like an extension of the applicant’s normal conversational style.

The banker will ask a variety of questions. Field each one thoughtfully, and truthfully. Promising to get back to the banker within 24 hours with answers that are not available during the meeting is a best practice. Don’t bluff it. Bankers are like mothers…they know when the truth is not being told. But, they will give the applicant the leeway to get back to them, since they understand no one can have all the answers at their fingertips. The final touches? Dress for success to engender and show respect, and arrive at least five minutes before the scheduled appointment time.

Promote Yourself and the Business!

The best cheerleader for a business is its current owner. Without engaging in theatrics, business loan applicants should sound and act passionate about their business proposal. Touting one’s experience and successes in prior business environments is especially useful. Bankers loan money to companies largely based on their perception of the skills, knowledge and abilities (SKAs) of the people who will run the business on a day-to-day basis. And that includes managerial staff below the owner. Being prepared to effectively position the experience and previous successes of the owner(s) and management staff is essential, including having current resumes in the loan package.

Prepare to Meet with Multiple Lenders

Presenting a business loan proposal to multiple lenders isn’t one of the 6 Ps, but it’s a reality of small business lending. Each bank will have their own preferences for certain industries they feel comfortable with. It pays to start with a bank that’s already being used for personal banking. Asking for referrals to other banks that may be better suited to the applicant’s loan needs is the next logical step if the current banker is not a good match. A list of all current SBA-participating lenders serving Nevada and their historical SBA loan production is available through this SBA Nevada District web site link.

Summary – Preparation is the Key

Successfully obtaining a small business loan is very challenging in the current economic environment. Following these steps will better position any small business loan applicant to ‘put their best foot forward’ when it comes time to meet with a lender. During this time of tight credit and lending, taking the time now to thoroughly prepare a loan proposal package and presentation will likely pay off when credit markets begin to recover, and lenders seek to bolster their loan portfolios through small business lending. Remember: Proper Prior Preparation Prevents Poor Performance.

This post provided by the U.S. Small Business Administration – Nevada District Office

Raising Capital

Bill Sims — Fri, 28 Sep 2007 16:37:19 +0000

Nevada provides many tools to small business – from incentives for business expansion to self-insurance plans to assist in risk management. Another tool Nevada corporations have in their business arsenal is the publicly registered offering of securities.

Raising capital through a public offering can help with an expansion or the launch of a new business. In Nevada, there are three ways to accomplish this: registration by filing, registration in coordination with the U.S. Securities and Exchange Commission (SEC); and an intrastate registration by qualification.

The “registration by qualification” process is business friendly. This is a cost-effective alternative to a national IPO. It takes only a couple of months to process and you can theoretically raise an unlimited amount of capital. The benefit of this process is that as properly qualified officer or director of the company, you can approach investors – anyone living in Nevada – through telephone calls, direct mail, seminars, and advertising.

As with any capital mechanism, a business owner needs to determine the risks and costs associated with the venture. For a variety of reasons, the securities markets provide an excellent source of capital for small business. But accessing that capital presents small and large business alike the responsibility of compliance with applicable securities laws. Understanding those laws is the first step toward raising capital, and the Nevada Secretary of State, Securities Division is committed to helping legitimate businesses, after they have consulted with their won attorney and accountant, chart an appropriate course in gaining assess to public capital.

The content of this post was provided in its entirety by the Nevada Commission on Economic Development and is used by permission.

Tax Workshop Opportunity

Ben Tedore — Thu, 30 Aug 2007 17:32:18 +0000

The Nevada Department of Taxation is holding a free Ask the Advisors “Basic Training Workshop” for new and existing businesses on Wednesday October 17, 2007 from 9:00 a.m. to 12:00 p.m. This workshop will cover topics including:

Understanding sales and use tax
Modified business tax
Live entertainment tax
Business license requirements
Sales tax permit fees
Collection of tax
Exemptions
Resale certificates
Petition/appeal rights
Taxpayers’ bill of rights

As well as how to:

Complete tax returns
Amend/correct returns
Prepare for an audit

Rod Jorgensen, Director of Counseling, had previously attended this workshop. He reported that it was highly informative with a lot of answers to everybody’s specific questions.

You can visit http://tax.state.nv.us/meetings.htm#advisors for more information or contact Molly at 775-688-1740 for additional questions or directions.

Post compiled by Dani Raffail & Brent Alexander