NFIB

Beg, Borrow or Steal
02/ 01/ 2005
by Gary M. Stern

Even after five banks rejected her loan application to open Tupelo Homey Café in downtown Asheville, N.C., owner Sharon Schott was not deterred. She kept looking, and finally, Asheville Savings Bank helped her secure an SBA loan. Five years later, Schott’s 85-seat restaurant is serving more sweet potato pancakes than ever before.

But Tupelo Homey Cafe was the exception since most start-up loans are rejected, says Les Charm, adjunct professor of entrepreneurial finance at Babson College in Wellesley, Mass. Getting a loan early is often difficult since small businesses must show a solid track record of profits first.

John Prosia, senior vice president of Leaders Bank, in Oak Brook, Ill., awards loans on three criteria: specific growth plans that detail how revenue will expand the business, the owner’s managerial experience, and financial records showing revenue that can repay the loan. Most loans are for no more than 50 percent of a company’s annual revenue.

Ideally, small businesses would show steadily increasing revenue, but most show bumps in the road, Prosia says. Luckily, a loss or teetering revenue isn’t always a bad thing in a bank’s eyes, as long as the business rebounded from the loss.

If you’re strapped for cash because your business is new or you want to expand, consider these tips on securing a bank loan:

* Identify the right bank. Start with your local community or commercial bank, Charm says. Larger banks are more focused on delivering the $2 million loan, not the $167,000 loan, the average SBA loan in 2003.

* Start developing a relationship with a bank. Before even applying for a loan, target a bank, open a checking account and begin building a relationship with that bank.

* Explain how your market is poised to grow. If you make buggywhips, securing a bank loan will be difficult. Explain how your home-furnishing store, Internet café or construction company will tap a new market and grow, suggests Prosia.

* Get expert assistance. Get advice from accountants or attorneys to strengthen your application.

* Detail how you will spend the capital. Be very specific about exactly what you will do with the new capital and how it will help your business grow, Prosia says.

*Need more advice on getting more capital for your small business? Visit “Loans” in the “Finance, Banking and Accounting” category of http://www.NFIB.com/toolsandtips .

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