Everybody’s business: Banker talks business loans

A great management tool for business owners is to have current and relevant information in order to make good business decisions. The decisions to expand, hire additional employees, or to introduce a new product or service requires planning and usually capital infusion. This holds true for starting a new business as well.

An interview about business loans was conducted with local lenders; below is a summary of their responses.

Q: When considering a loan for a startup business what are the most crucial items that will decide a yes or no, and why?

A: The business plan in particular with attention to the projections and how they were arrived at is necessary. A complete business plan demonstrates commitment to the business when the going gets difficult. A plan defines where the business is going; without it there is no hope. Another crucial item is cash flow and working capital. Cash flow is essential to the ability to service debt. Working capital will ensure that the business can meet operating expenses while the business is getting established. Experience in the particular industry is a must, without it chance for success is minimal.

Q: Is the answer different for an existing business?

A: The only difference is an existing business will have historical data and performance measures. Past performance or trends are a good indication of future results. A plan of action is needed so the progress and direction can be measured against a standard. The business plan provides the written action. Most lenders will not provide an unsecured business loan, therefore collateral is required.

Q: When considering a loan what factors are automatic deal breakers?

A: The old saying “must have money to borrow money” holds true. It is interesting the number of individuals who do not want to and actually say they do not want to guarantee their loan. According to the interviewees, this is an automatic deal breaker. In addition, lack of a solid well thought out, justifiable and reasonable business plan for a startup is about as detrimental as anything. The credit history of the business owners indicates their character in paying the loan back. If it is questionable this can be close to an automatic deal breaker. Other concerns are inadequate cash flow and inadequate equity injection.

As a business consultant one of the concerns we hear is that lending practices are different from prerecession times. According to local lenders, their lending practices have not changed. One lender stated “practices, unchanged. Don’t fix what isn’t broken.” Another lender said, “We were very conservative then and we are still.” Mostly the rules lenders must adhere to have changed. The timeframe in getting a loan guaranteed by the federal government has expanded from weeks to months. It may appear there are major additional requirements when there really are not.

Sandra Taylor-Sawyer is director of the Small Business Development Center at Clovis Community College. Call the center at 769-4136 or visit www.nmsbdc.org/clovis