Veterans Business Resources

a portal for all Veterans and SDV Small Business Owners

Financing a Business in Difficult Times

As a child, growing up in central Alabama, I can recall asking my father for money. I always knew he would want to know what I would be using the money for. His simple question caused me to think and have a lot of anxiety about my answer. My stomach would turn in knots.

That same simple concept is true today in commercial lending. If you ask for money, the lender will want to be able to ask why you need it. This can be insulting to some and a challenging to others.  At the SBDC we believe that when a lender asks a borrower about how he or she will use the money, they are doing it because, like my father, prudent judgment requires it. But we further think that borrowers need to understand that this question or set of questions are for their own good. Yes, I know it is difficult but it is not impossible to explain why a business would need to borrow funds.

So we embark on the dreaded and feared “business plan”. I think, in over twenty years of small business consulting, the business plan is the most under rated and misunderstood instrument known to mankind. I know that the business plan documents we review here at the SBDC vary widely in size and concept. Go figure.

We think that step one is to learn the language. Then understand what a lender is asking of you. Understand why the lender asks for certain documents and be able to anticipate questions. So often, borrowers are miffed that they need to, for example, present personal tax returns, to apply for a loan. They seem surprised that personal credit is reviewed for a business loan. And on and on it goes. Let us be clear, we are in difficult times when it comes to borrowing and lending so we as borrowers need to be squeaky clean. Frankly, these tough questions were asked in good times. It just maybe that now it has to be documented.

Therefore we should remember our “C’s of borrowing”. Cash – a must have for start ups, (your equity). For existing businesses you need to show equity in lieu of cash and hope that it is good enough. Credit– always check all three credit bureaus. Once per year federal law requires all three bureaus to give you one free copy of your credit file. (www.annualcreditreport.com). Collateral – can you offer something of value to secure the loan? Conditions – can you find and give good current information about your industry? And finally, Character – in which some lenders say your credit report reflects your character. For the purpose of SBA are you on parole or probation?

Support Your Plan. Give facts not guesses. Make sure to site creditable sources in your proposal. (No matter how much you like your brother-in-law, he may not be a recognized, creditable source for your industry). Have good, reasonable, supportable numbers in your financial statements, (projections). It is not the first rodeo for the lenders, who may review your plan.  They can smell a rat, miles away.

Lastly, know where to go to seek help. The SBDC provides that help. Another set of eyes and the experience helps more than you think. I am biased.
 

David L. Edmonds, Director
Tarrant County College
Small Business Development Center
Major, U.S. Air Force Reserve, Retired

email: david.edmonds@tccd.edu
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