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Bankers are simply deciding if they want to take the risk of funding your business idea. So what if you had the right answers to all of their questions? What if you knew how to present your business in such as way that a banker will be begging to give you money? For this second class of LEDA's educational series, they brought in two experienced bankers who will teach you how to get money from a bank to start or grow your business today. It is not as hard as you think.
Funding & Capital and Small Business Programs
Lafayette Economic Development Authority "Business Life Cycle Education Series"
This informative LEDA Business Life Cycle session was led by local relationship bankers Kirk Taylor and Carey Chopin and moderated by LEDA's Mark Mouton. Kirk Taylor has been in the banking industry for over 25 years, the last year with JP Morgan Chase. Kirk is passionate about building financially stronger communities through local events and business assistance. Carey Chopin has been in the banking industry and with Gulf Coast Bank for 21 years as a commercial lender. Carey loves helping business owners realize their hopes and dreams. Mark Mounton has led the Business Retention and Expansion Department at LEDA since 2008, working closely with businesses and community leaders to support growth and expansion. If you are an entrepreneur in Lafayette, LA there are so many resources just waiting for you to introduce yourself. If you link up with either of these experts, you will be guided through all the resources our great city offers.
A bank is a bank. They all have one mission; buy and sell loans. Usually, a bank will do any loan that benefits them but they focus on one product such as credit cards, unsecured loans, home mortgages, or small businesses. The most common loan for small businesses is through Small Business Administration called a 7(a) loan. It can be used for short and long-term capital needs, refinancing business debt, or purchasing real estate. It can be used on a startup or existing business. How it works is that SBA partners with you on a loan for your business from a bank. SBA will guarantee a portion of the loan, never 100%, making you less of a risk to the bank. T qualify for this loan, you must present a lot of information and get your application approved. Franky, your business must have a reasonable chance of success. To be eligible, it needs to be a for-profit business, initially doing business in the United States, and have a reasonable invested equity. You need to have skin in the game, usually at least 10% of the loan value upfront. Also, you have to be ineligible for traditional loans before you will be considered for an SBA 7(a) loan. It is really for startups or growth-ready business that doesn't qualify for traditional financing. An SBA loan is just a stepping stone to qualify for traditional financing, which is usually easier, faster, and more favorable repayment terms for established businesses. It's possible to get an SBA 7(a) loan for any number of businesses you start. While there are clear-cut rules to accessing an SBA Loan, they are approved on a case-by-case basis. The most popular use of an SBA loan is to buy real estate or an existing business. SBA and the bank will look at your business plan, your research, your experience, and your 3-year reasonable projections. The decision is usually based on if your idea can survive the worst-case scenario.
Another SBA program is the 504 loan program, specifically for the acquisition or improvement of business-owned real estate for operations. It allows for a long-term fixed rate, best for a low or average-rate economy. Long-term fixed rates are usually 3-5 years but some banks will approve 5-10 years fixed rates. You would still need to come up with at least 10%, then SBA usually funds up to 40% of the project and the bank will fund the remaining up to 50%.
One option you must explore before SBA would typically approve you is a Home equity line of credit (HELOC). If you have equity in your home, then you may be asked to use a HELOC either as the only source of funding or as part of the SBA Loan. Other options may include your 401K, savings accounts, stocks, bonds, etc. Basically, if you have resources that you could use for your business, they will wonder why you wouldn't use them first before applying for a government-funded loan. If you are not willing to lose your house, then you are not ready to start a business. Your personal credit and collateral will always play a part in early-stage funding, even if you have a separate entity for your business. However, if you are willing to take an adequate amount of risk, there are a lot of resources and programs to help you based on where your business is in its life cycle. You are interviewing the funding sources as much as they are interviewing you.
When applying for funding, no matter from whom, they are looking for an adequate business plan and preparation but also confidence in your idea. Chances are you will have to speak to a gatekeeper who in turn has to present your business to a decision-maker. So you must impress the gatekeeper well enough that they will champion your business to the decision-maker. To impress both the gatekeeper and the decision-maker you must be knowledgeable about the type of funding you are looking for; i.e. line-of-credit, unsecured loan, etc. Your confidence also comes from the strength of your business plan and some level of proof of concept. That means you know for a fact that people are willing and able to purchase your solution.
Regardless of if and when you are looking for funding, you must be on top of your financials from day one. Quickbooks is one of the most popular bookkeeping sources for startups and small businesses. Your financial statements will be the number topic of discussion among partners, investors, and other business owners. Your cash flow projections will help you set sales goals, which will help determine your need for financing and ability for repayment. Before you even start the business, you would need to do some tweaking to these numbers to create reasonable and accomplishable goals. This the usually the part of owning a business that is not as fun but it is so important to achieve sustainable success.
These SBA loan programs help young entrepreneurs to approach a bank with everything they are looking for. You can now let go of your funding excuses. These programs to specifically designed to grow your business only the strength of your business idea. So your focus should be on strengthening your business idea, then using that idea to fund your business.
If you haven't reached out to LEDA or SBA for assistance yet, it should be the next click you make on your mouse. They can help you put together your business plan and get business funding. If your business doesn't need funding right now, then it's a great time to get funding. It sounds counter-intuitive but it's always easier to get money when you don't need it than when you desperately need it. Check out the SBA loan programs today.
Works Cited
Lafayette Economic Development Authority "Funding & Capital and Small Business Programs" Business Life Cycle Education Series, 2023.
