Obstacle 1: Proof of Experience
“As an advisor with the Small Business Development Center, I see a number of small businesses who come to us because they went to their local bank and said simply ‘I want a loan to start a business,’” says Chambers. The bank will want to see proof of experience in the industry that they are planning to start their venture.
The bank might then ask the client what they currently do in their career and what financial resources they have, for example, “How do you propose to repay the bank?” Often, the client responds with, “The business I start will make enough to repay the bank.” This presents another obstacle. The bank cannot loan money on a wish!
Solution: Visit your local Small Business Development Center (SBDC)
The Small Business Development Center exists to help entrepreneurs in all phases of the business lifecycle. Even if you have been turned down by one or two banks, the SBDC can help! First, they will assist the entrepreneur by preparing them with what they need to take to a bank to support their request. They do this by assisting the client in preparing a business plan. They require the client to draft a business plan which involves research about the product, competition, marketing, competitive advantages, vendors, and cost analysis. Sometimes they will even request a “bill of materials” for the product and have the client find the cost for each of the materials. Note: If a client wants to produce a product, but does not understand a “bill of materials”, that lack of understanding is another obstacle.
Next Steps: Financial Projections
Based on the work provided for the business plan, the SBDC will assist the entrepreneur by preparing a draft of income and expenses, a balance sheet, and often, a cash flow statement. This process is a collaboration between counselor and the client. Counselors may also prepare industry data with ratios and guides from the industry data, to assist in the entrepreneur’s quest for capital.
Expectations: Head to the Bank
The bank will also likely want to see personal financial statements to go along with the business plan and financial projections. Be prepared to present your investments, debts, and up to three years of tax returns in order to go to the bank. Sometimes lack of collateral or credit card debt can result in a lender refusing the lending request.
ABOUT THE AUTHOR
Charlie Chambers is a Certified Public Accountant and a Global Certified Management Account. Charlie was employed at Owens Corning for 28 years before striking out on his own and has worked as CFO or Controller at a number of area companies. Charlie now serves as the Lead Financial Consultant for the SBDC and has a passion for helping small businesses to grow.