Odds are you are going to need to seek out loans to finance your business. To help you find sources of financing, we have included a quiz from the Small Business Center's web site. One section is for those looking to start a business, the other for those looking to expand an existing business. The quiz will help you determine whether or not you are in the position to obtain a loan. If you are, we have listed a few of the loan programs you should contact. If you discover that it might not be possible to obtain a loan at this time, don't give up. There are other sources of financing available, and many of the organizations above can give you information on how to make your business plan loan-ready.
Qualifying for a loan
Whether you are applying for a small business loan through a traditional lender or are interested in one of the many Small Business Administration guaranteed loan programs, there are certain critical factors that will heavily impact the loan decision process. Take this brief test to see if you are ready to qualify for a loan.
I. Test #1: Can I Qualify for a Business Loan?
a. Do you have a good personal credit history?
Good personal credit history is considered one of the most important factors in identifying borrowers who are likely to repay their loan, so most loan programs will look closely at your personal credit history. However, blemishes on your record will not automatically disqualify you. If you have had credit problems in the past 10 years - bankruptcy, slow payments, collections, judgments, etc. - it may be more difficult or time-consuming to qualify. If that history can be explained by a particular incident, supply information on the situation and how you attempted to repair your credit problems. If you have persistent credit problems, you will need to "repair" or "rebuild" your credit history. Contact a credit-and-debt counseling service in your community for assistance. If you do not have a recent personal or business credit report, you can order one by calling a credit reporting service, of which there are several. Check the business listings.
b. Have you filed your personal and business income taxes?
Lenders and government loan programs alike want to see that individuals and businesses have met their tax obligations for both filing and paying all taxes. The SBA requires IRS verification that tax returns have been accurately filed.
c. Are your income taxes paid?
The SBA generally will not approve loans for individuals with unpaid taxes.
d. Do you have any collateral to secure a business loan?
Although lenders and the SBA generally do not decline a loan solely for lack of collateral, the more collateral you have, the more favorably your application will be considered. Business assets purchased with the proceeds of a loan may be used as collateral. However, this may not be enough, because these assets often will be valued at less than face value. Lenders and the SBA will then look for a secondary source of repayment should the business default. Business and personal assets can be considered as collateral, depending on the type of asset.
e. Are you willing to personally guarantee a loan?
Many lenders will require you to personally guarantee a loan. (The SBA requires all owners of 20 percent or more of the business to provide personal guarantees.)
f. Can you demonstrate that your business has the ability to repay a loan?
If your business is profitable, there should be a demonstrated ability to repay any new debt. If the business is not profitable, then it is very important to show how the new assets acquired with the requested loan will make it profitable and repay the loan in the near future. SBA district offices, small business development centers (SBDCs), women's business centers (WBCs), business information centers (BICs), and chapters of the Service Corps of Retired Executives (SCORE) located near you have information, workshops, and individual counseling to assist you in this process. If you are unable to locate a resource in your community, please contact the SBA for assistance.
g. Does your business have a positive net worth?
The net worth (total assets minus liabilities) of your business should be positive. If there are loans from shareholders on the balance sheet and you are able to subordinate these (not pay the shareholders) while you repay the bank loan, you may consider these shareholder loans as equity.
h. Is your business capable of carrying more debt?
Businesses that have excessive debt will find too much of their profits directed at paying back loans rather than building retained earnings that can support future growth. Consequently, banks and government loan programs look more favorably at loan requests that do not add too much debt to the business. Banks often look for a debt to net worth ratio of 4-to-1 or less (total liabilities divided by equity). SBA counselors can assist you in assessing your debt situation.
i. Does your business have managers and advisors capable of leading your business to the next level of growth?
As businesses expand, they become more complex and need more sophisticated management-strategic planning, marketing, record-keeping, inventory control, personnel, etc. The SBA's entrepreneurial training classes, counselors, and business resources in your community can help you grow your management as you grow your business.
STOP!
If you cannot answer, "yes" to all of the questions in this survey, you may not be adequately prepared to apply for financing at this time. We suggest that you evaluate the needs of your business and take advantage of the SBA's workshops in your community.
GO!
If you can answer, "yes" to all the questions in this survey, you may be qualified for a business loan. Contact your lender or the SBA district office nearest you for more information and any assistance you may need in preparing a successful loan package.
II. Test #2: Can I Qualify for a Start-Up Business Loan?
a. Do you have a good personal credit history?
Good personal credit history is considered one of the most important factors in identifying borrowers who are likely to repay their loan, so most loan programs will look closely at your personal credit history. However, blemishes on your record will not automatically disqualify you. If you have had credit problems in the past 10 years-bankruptcy, slow payments, collections, judgments, etc.-it may be more difficult or time-consuming to qualify. If that history can be explained by a particular incident, supply information on the situation and how you attempted to repair your credit problems. If you have persistent credit problems, you will need to "repair" or "rebuild" your credit history. Contact a credit-and-debt counseling service in your community for assistance. If you do not have a recent personal or business credit report, you can order one by calling a credit reporting service, of which there are several. Check the business listings.
b. Have you filed your personal and business income taxes?
Lenders and government loan programs alike want to see that individuals and businesses have met their tax obligations for both filing and paying all taxes. The SBA requires IRS verification that tax returns have been accurately filed.
c. Are your income taxes paid?
The SBA generally will not approve loans for individuals with unpaid taxes.
d. Do you have any collateral to secure a business loan?
Although lenders and the SBA generally do not decline a loan solely for lack of collateral, the more collateral you have, the more favorably your application will be considered. Business assets purchased with the proceeds of a loan may be used as collateral. However, this may not be enough, because these assets often will be valued at less than face value. Lenders and the SBA will then look for a secondary source of repayment should the business default. Business and personal assets can be considered as collateral, depending on the type of asset.
e. Are you willing to personally guarantee a loan?
Many lenders will require you to personally guarantee a loan. (The SBA requires all owners of 20 percent or more of the business to provide personal guarantees.)
f. Can you demonstrate that your business has the ability to repay a loan?
You will need a business plan, which includes a statement of projected income and expense. This statement details how you expect to repay your loan and any other debt. Start developing your projections by finding as much data as possible on similar businesses. Your local library can be of assistance. Also, SBA district offices, small business development centers (SBDCs), women's business centers (WBCs), business information centers (BICs), and chapters of the Service Corps of Retired Executives (SCORE) provide information, workshops, and individual counseling to assist you in developing a business plan. If you are unable to locate a resource in your community, please contact the SBA for assistance.
g. Do you have enough money of your own to put into the business?
All loan programs require the business owners to invest a significant amount of their own funds or assets in the business. This shows that the owners are committed to the business and also reduces the risk. The amount of owner investment depends on a number of factors including type of business, size of business, loan program, etc. While some loans may require an owner's investment of as little 10 percent of the total amount of financing needed, many will require from 20 to 30 percent.
h. Do you have experience in running your own business?
For a new business especially, it is important for the business owner to demonstrate experience in the industry and/or entrepreneurial experience. If you have never owned or operated a small business, we strongly recommend you attend one of the SBA's many entrepreneurial training classes. For information, please contact the SBA for information.
STOP!
If you cannot answer "yes" to all of the questions in this survey, you may not be adequately prepared to apply for financing at this time. We suggest that you evaluate the needs of your business and take advantage of the SBA's workshops in your community.
If you can answer, "yes" to all the questions in this survey, you may be qualified for a business loan. Contact your lender or the SBA district office nearest you for more information and any assistance you may need in preparing a successful loan package.
GO!
If you can answer, "yes" to all the questions in this survey, you may be qualified for a business loan. Contact your lender or the SBA district office nearest you for more information and any assistance you may need in preparing a successful loan package.
III. Sources for Loans
Count Me In, Inc
An online organization dedicated to women's economic independence. Count Me In offers an online credit scoring system that makes loans of $500-$10,000 to women across the US who are starting a business. The website also contains a business library and educational resources for women in business.
Contact:
Count Me In, Inc
240 Central Park South, Suite 7H
New York, NY 10019
Phone: (212) 245-1245
Email
An agency within the US Department of Agriculture that offers farm loan funds for buying and operating a farm to minority groups through the Socially Disadvantaged loan program.
This fund finances both start-ups and expansions in the range of $1,000 to $50,000. It is run by the Newfound Economic Development Corporation and serves the Greater Newfound Region.
Micro-Credit - NH offers loans, business skills development, and access to new markets for New Hampshire's smallest businesses. This program of the non-profit NH Community Loan Fund assists businesses of five or fewer people, including the owner. These self-employed people meet in peer groups to advise each other on making business decisions and to develop business skills through a series of tutorials and seminars. Loans of $500 to $5,000 are made with no credit check or collateral. The Financial Management Training Program offers financial training for those who lack experience in dealing with financial statements.
This site functions as a business funding directory, helping people locate potential funding sources for business or real estate projects. It includes a section for lenders/investors and offers free resources (such as a downloadable workbook with step by step instructions to successfully raise capital for your business) and links to other great sites.
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