CHOOSING A FINANCING PARTNER
By Frank Mitchell Corso, Small Business Developer

For this writer, it was a task that seemed eternal. There are many lenders who promote themselves as "small business friendly," pontificating about their willingness to lend money to small business. In reality, however, whether they participate in the government-guaranetted Small business Administration (SBA) loan programs or in conventional financing, many banks will not finance small businesses. Why? Because most require all of the following:

1. the business be in the best financial condition;

2. the business be operational for at least three years;

3. the borrower provide collateral exceeding the loan amount; and

4. the borrower place a blanket lien on all business assets.

Although many small businesses do not meet these strict requirements, they are good candidates for start-up and/or expansion loans. These businesses must, however, be presented as such to a potential financing source.

As a small business consultant, my firm assists borrowers in securing desired loans. It is important for the potential borrower to:

1. determine the use of proceeds and feasibility of the business loan;

2. prepare a business loan package which includes the business plan, cash flow projections with assumptions, and all loan forms and documents (SBA and/or bank); and

3. choose a lending partner who is most likely to complete the deal.

In developing a successful relationship with a lender, I found that it is important to set specific criteria, and judge your lending partner accordingly. Because my clients are located throughout the United States, I require a national lender or regional lender who brings experience, knowledge and creativity to the loan evaluation process. You should demand the same. It is imperative that a borrower investigate potential lenders to make sure they are compatible with the borrower, have the appetite and ability to do the loan. Every lender is different. Some lenders will do start-up business loans and many will not. Startup business means different things to different lenders. To certain lenders it is a business opening it's doors to tomorrow and to others it is a business that is under three years of age. It is the obligation of the potential borrower to do its due diligence in investigating a lender. The borrower should inquire of the lender if they have knowledge in the industry in which they are involved and if they lend to the region of the country the business is or is to be located.

In the lending world, loans can be secured from banks and non-banks. Banks may have internal policies which can be very difficult to deal with and have many restrictions. Banks are often limited by their geography in assisting borrowers outside of specified territories, and shy away from smaller dollar transactions.

On the other hand, non-bank lenders can be more creative in lending money, and are free of many of the regulatory constraints and rigid loan evaluation procedures associated with banks. Many firms work with non-banks lenders and bank lenders who specialize in different types of financing from SBA and conventional loans to venture funds to meet all small business financing needs.

We have developed a strong and successful relationship wit the many lenders. A borrower generally does not have that benefit so it is important for the borrower to ask all the right questions of the lender to get a clear indications that they would be willing to entertain a loan scenario. Proudly, we have one of the best approval rates in the country on loans submitted. A borrower should request to meet with a loan officer and credit underwriters. This will allow the borrower to explain further about the business and principals.

Once a decision is made to borrow money, several factors must be considered. How much money does the business need and for what purpose; i.e. working capital, inventory, business equipment, leasehold improvements, advertising, promotions, production and/or manufacturing, sign age, legal and accounting fees, etc. This writer hears regularly from potential borrowers should I ask for more than I really need because the lender will not give our business the amount we requested. Part of the business loan package is to demonstrate through historicals and/or cash flow projections the ability to repay the money in which the borrower is asking for. If the borrower can show the ability to repay and how it will do so. They will have the best opportunity in convincing a lending to lend money.

Remember, choosing a financing partner doesn't need to be such a difficult task. Select your criteria specific to your needs, and determine how your lender stacks up. Creativity, product selection, flexibility, and a genuinely enjoyable working relationship will be sure to reap substantial rewards for you and your business for years to come. are many ways to obtain monies for your new or existing franchise. A business loan from a bank or a non-bank is one way of raising the money you need. There exists many different types of business loans. The United States Small Business Administration offers several loan programs available to United States Small Business.

The Small Business Administration 7(a) and Low Documentation Guaranteed Loan programs are loan programs that fit the needs of may franchisees. The Low Documentation Guaranteed Loan program is a derivative of the SBA 7(a) Guaranteed Loan program. This program is about two years old.

The 7(a) and Low Documentation programs are guaranteed lending programs of the Federal Agency, Small Business Administration. A lender, approved by the government, lends the money to the small business. The government will guarantee eighty percent of the low documentation loan and seventy to ninety percent of the 7(a) depending on the use of proceeds and strength and weakness of the potential borrower. These lenders can be a bank or a non-bank. The lender may be a small regional bank or a national lender.

An existing or start up franchisee is eligible to submit his or her loan request to a participating lender. To have the best opportunity to secure a business loan the franchisee must prepare and submit a business plan along with several documents to give the lender and the SBA enough information to make an intelligent decision on repayment ability and methodology of payback. The business plan and supporting documents are very important to the lender and SBA. Your plan is your selling tool to convince the lender and SBA to give you the money. You do not get a second chance to make a first impression. The plan, documents and properly completed SBA & Bank Forms is their first impression of you.

The business plan is a detailed narrative of the business, its principals, the franchise, the competition, the industry, et al. The additional portions of the business plan and loan package would be demographics, marketing materials and strategies, descriptions of the job, functions of the principals and employees, resumes of the owners and key employees, one to three year cash flow projections, personal tax returns on owners of 20% or more of the business, business tax returns, accounts payable, accounts receivable, balance sheet, financial statements, personal financial statements on all principals who own twenty percent or more of the business, business lease, insurance, franchise agreement, Uniform Franchise Offering Circular, Collateral to be offered for the loan, etc.

It must be explained in the use of proceeds; what you need the money for, i.e. working capital, inventory, renovations or construction, franchise fee, business equipment, advertising/promotions, pay off business debt, etc.

All loans are to be adequately secured by collateral. The collateral may be business equipment and/or real estate. Not having real estate will not disqualify you from obtaining a loan. Many lenders who participate in the Low Documentation Loan program do not want real estate as collateral because they must liquidate the collateral before they can turn to the SBA for reimbursement.

For loans of less than seven years the interest rate can be up to 2.25 percent over prime and for loans over seven years or longer can be up to 2.75 percent over prime. It can be fixed or a floating rate. Generally the lenders prefer offering a floating rate.

Most of the time the owners will have to personally sign for the loan together with the business.

You must demonstrate the ability to repay the loan to the lender and SBA together with the methodology of payback. This is a brief overview of the Small Business Association's 7(a) and Low Documentation Guaranteed loan programs.