Resolve to grow your business in 2010. But if you have not started your company yet, resolve to launch it.
Most pundits are expecting the economy to improve and the credit markets to thaw in the coming months, albeit slowly. It is reason enough to firm up your banking relationships so that you have the financial power to execute your business plan when the moment is right.
"I look for (lending) clients who also express an interest in a long-term relationship," says Donly Chase. "If you accept my loan, but take your deposits elsewhere, you haven't reciprocated."
He is a seasoned Atlanta lender who was president of Midtown Community Bank. It failed, along with its parent, Buckhead Community Bank of Atlanta, Ga. The Federal Deposit Insurance Corporation merged it with Macon, Ga.-based, State Bank and Trust Company on Dec. 4. Chase remains with State Bank.
He says, "As a minimum, hard equity of at least 20 percent of the total financing would be needed." Accordingly, ask your lender how much of your own cash investment is required. It will vary depending upon the bank, your industry, your related experience, collateral offered and the company's existing cash flow.
Lenders shy away from the businesses that are most vulnerable during economic downturns. Restaurants, hotels and automobile-related businesses are among the industries for which some lenders are categorically denying loans. Retail start-ups are tough to finance as well.
Angela Smith, a SCORE volunteer and former loan officer with Bank of America, says "It is important that borrowers do some upfront homework to identify a lender that has an appetite for the type of industry they are in." For fledgling businesses, she says, "If a lender requires at least two years in business, it would be prudent for a borrower to find a lender, be that a bank or an alternative lender, who will be flexible regarding time in business."
Alternative lenders include the U.S. Small Business Administration's micro-lenders. Pending legislation will allow them to lend up to $50,000.
Non-banks such at CIT sometimes make more marginal loans. It was SBA's No. 1 lender nationwide until it declared bankruptcy last year. It recently emerged from receivership and has a lending office in Raleigh. To punctuate its return to prominence, CIT is temporarily waiving its loan fees and plans to lend $500 million in 2010. They have lending officers nationwide.
Smith says, "Personal credit is even more important than ever." So while FICO scores in the 600s may have landed financing in the past, 700 has become the new minimum.
Borrowers without a strong track record of profit will be required to pledge hard collateral. State Bank's Chase explains that, "Good collateral could be properly margined real estate or marketable securities."
"Receivables and inventory, and furniture, fixtures and equipment may also be acceptable collateral though less desirable than good collateral and require higher margins," he says.
A banker's worst nightmare is taking back a failed restaurant and reselling tablecloths, knives and forks for less then 20 percent of the original cost.
More borrowing tips and a loan presentation format is available online.
To learn more about SBA's loan programs, find its lenders and get help from its resource partners, download its guide for your state and visit its Web site.
Jerry Chautin is a volunteer SCORE business counselor, business columnist and SBA's 2006 national "Journalist of the Year" award winner. He is a former entrepreneur, commercial mortgage banker and business lender.