Wednesday, November 22, 2006
How to Prepare to Apply for a Small Business Loan
Before lenders will grant a small business loan, they want to be sure that the loan will be repaid. Every loan is a risk, but banks and brokers want to take as little risk as possible. They look for businesses that show promise, and they award loans to businesses that have solid personal and business backgrounds and are committed to the success of their businesses.
(u)(b)What are the first things the lender will look at? (/u)(/b) The following are the five basic items that all lenders look at before they will approve your business loan:
1. (u)Credit history(/u) One of the primary factors lenders look at is the condition of your personal and business credit. This is generally reflected in your credit score that is obtained from the three credit reporting agencies. Your personal credit score is associated with your Social Security number, but business credit reports are tied to your tax ID number. Before you even start shopping for a loan, request a copy of your credit report from all three major reporting agencies: Equifax, Experian, and TransUnion. Review it carefully and correct any mistakes before you start the application process.
2. (u)Your Investment(/u) Business loan applicants should have a reasonable amount of their own money invested in their business. Lenders want to know that you will be motivated to work hard to make your business a success. When they see that you have invested a substantial amount of your own money in your venture, they will assume that you will work hard to make it a success. The amount of your required investment may vary, but it should be at least 20% of the amount you need for the business venture.
3. (u)Working capital(/u) Working capital consists of your current assets minus your current liabilities. Working capital can also be thought of as cash on hand or what is available to pay current debts and keep your business running. A lack of adequate working capital increases the risk that your business will fail and makes lenders much less likely to approve your loan.
4. (u)Ability to repay(/u) Banks want to see two sources of repayment: (b)cash flow from your business(/b) and a secondary source which is typically (b)collateral(/b). Lenders will look at your past and projected financial statements. They will want to see your personal financial statements, personal tax returns for the past two-three years, business financial statements for the past three years or for three projected years, and accounts receivables and payable aging. If your business has consistently made a profit or you can reasonably project a profit, you are more likely to get approved. If your business has not been consistently profitable, you can increase your chances of getting a loan by including detailed information of new opportunities, new contracts, or other information showing that your company’s future will be profitable.
Most lenders require collateral to secure the loan. Collateral is required for all SBA loans. Collateral can be business assets and personal assets. If you plan to purchase equipment and other assets with borrowed funds, these assets will be used as collateral for the loan. Lenders will also require you to personally guarantee the loan.
5. (u)Experience and character(/u) Lenders will expect you to have experience in the type of business that you plan to run. If you do not have that experience, lenders will expect you to hire people who have experience. Even if you do not have experience in this type of business, you should at least be able to show experience in other businesses and managerial experience.
(u)(b)What documents will lenders require?(/u)(/b) In order to expedite the process, the following four documents should be available for the lender to review:
1. (u)Business plan(/u) A business plan is particularly important for new businesses, as they lack a track record for lenders to review. Your plan should convey all important facts about your business in a concise manner. A professional business plan will be at least 20 pages long, plus financial projections. The business plan will include:
(b)Balance sheets, Profit and loss statements, and Cash flow projections(/b) from the last three years or for three years’ projections. (b)Accounts receivable and payables aging(/b) breaking your receivables and payables in to 30-, 60-, 90- and past 90-day old categories. (b)Market data(/b) showing demand for your type of business (b)Research on competitors(/b) including their customer base and price points
2.(u)Loan request(/u) This can be included with the business plan and should detail the amount of money requested, how the loan funds will be used, the type of loan, the amount of working capital you have, the collateral that will secure the loan, the personal guarantees of the loan, and how the loan will be repaid.
3.(u)Personal financial statements(/u) You will need to provide personal financial statements for anyone who owns 20 percent or more of the business. The financial statements must include a complete schedule of assets, debts with balances due, payment schedules, maturity dates, and collateral used to secure other loans.
4.(u)Other documents(/u) Lenders may also require articles of incorporation, taxpayer ID number, legal descriptions of real property, leases, equipment inventories with serial numbers, proof of insurance for collateralized items, and letters of intent showing that commercial accounts intend to do business with you.
(u)(b)What is the loan process?(/u)(/b) Some lenders like to prequalify potential borrowers to determine how much they can afford. This also gives you and your lender an opportunity to see which loan program would be most appropriate for your needs. After the lender gathers basic information and your application is received, a loan officer or processor will review your credit reports, the amount of available collateral, and your income.
The loan officer will determine if any additional documentation is required. If you are purchasing real estate, you may also need to submit preliminary environmental reports, area maps, title reports, property appraisals, and lease summaries. Next, your commercial loan package is submitted to the decision makers -- either a loan committee or underwriter. During the underwriting process, you may need to furnish additional documentation.
After the underwriting process, you will receive a letter of intent or term sheet. A letter of intent or term sheet is a formal document intended to put all parties (the lender and your company) on the same page. The letter of intent will include the names of all parties, amount of financing, type of collateral, and other key terms. After all underwriting conditions are satisfied, the final loan package is resubmitted to the loan committee for final approval.
At this point, the lender will issue a final full loan commitment. If your loan is approved, you will receive closing documents and they may be handled by a title company. The title company will record deeds and mortgages, order title insurance, coordinate the exchange of funds, and arrange for you to sign the loan documents. At the closing, the lender funds the loan with a cashier’s check, draft, or electronic wire transfer.
Being prepared and organized can save time and help your loan get approved. Be prepared to have all required information ready to submit if your lender requests it.
Jo Ann Joy, Esq., MBA,
CEO The future of your business starts here!
(u)(b)What are the first things the lender will look at? (/u)(/b) The following are the five basic items that all lenders look at before they will approve your business loan:
1. (u)Credit history(/u) One of the primary factors lenders look at is the condition of your personal and business credit. This is generally reflected in your credit score that is obtained from the three credit reporting agencies. Your personal credit score is associated with your Social Security number, but business credit reports are tied to your tax ID number. Before you even start shopping for a loan, request a copy of your credit report from all three major reporting agencies: Equifax, Experian, and TransUnion. Review it carefully and correct any mistakes before you start the application process.
2. (u)Your Investment(/u) Business loan applicants should have a reasonable amount of their own money invested in their business. Lenders want to know that you will be motivated to work hard to make your business a success. When they see that you have invested a substantial amount of your own money in your venture, they will assume that you will work hard to make it a success. The amount of your required investment may vary, but it should be at least 20% of the amount you need for the business venture.
3. (u)Working capital(/u) Working capital consists of your current assets minus your current liabilities. Working capital can also be thought of as cash on hand or what is available to pay current debts and keep your business running. A lack of adequate working capital increases the risk that your business will fail and makes lenders much less likely to approve your loan.
4. (u)Ability to repay(/u) Banks want to see two sources of repayment: (b)cash flow from your business(/b) and a secondary source which is typically (b)collateral(/b). Lenders will look at your past and projected financial statements. They will want to see your personal financial statements, personal tax returns for the past two-three years, business financial statements for the past three years or for three projected years, and accounts receivables and payable aging. If your business has consistently made a profit or you can reasonably project a profit, you are more likely to get approved. If your business has not been consistently profitable, you can increase your chances of getting a loan by including detailed information of new opportunities, new contracts, or other information showing that your company’s future will be profitable.
Most lenders require collateral to secure the loan. Collateral is required for all SBA loans. Collateral can be business assets and personal assets. If you plan to purchase equipment and other assets with borrowed funds, these assets will be used as collateral for the loan. Lenders will also require you to personally guarantee the loan.
5. (u)Experience and character(/u) Lenders will expect you to have experience in the type of business that you plan to run. If you do not have that experience, lenders will expect you to hire people who have experience. Even if you do not have experience in this type of business, you should at least be able to show experience in other businesses and managerial experience.
(u)(b)What documents will lenders require?(/u)(/b) In order to expedite the process, the following four documents should be available for the lender to review:
1. (u)Business plan(/u) A business plan is particularly important for new businesses, as they lack a track record for lenders to review. Your plan should convey all important facts about your business in a concise manner. A professional business plan will be at least 20 pages long, plus financial projections. The business plan will include:
(b)Balance sheets, Profit and loss statements, and Cash flow projections(/b) from the last three years or for three years’ projections. (b)Accounts receivable and payables aging(/b) breaking your receivables and payables in to 30-, 60-, 90- and past 90-day old categories. (b)Market data(/b) showing demand for your type of business (b)Research on competitors(/b) including their customer base and price points
2.(u)Loan request(/u) This can be included with the business plan and should detail the amount of money requested, how the loan funds will be used, the type of loan, the amount of working capital you have, the collateral that will secure the loan, the personal guarantees of the loan, and how the loan will be repaid.
3.(u)Personal financial statements(/u) You will need to provide personal financial statements for anyone who owns 20 percent or more of the business. The financial statements must include a complete schedule of assets, debts with balances due, payment schedules, maturity dates, and collateral used to secure other loans.
4.(u)Other documents(/u) Lenders may also require articles of incorporation, taxpayer ID number, legal descriptions of real property, leases, equipment inventories with serial numbers, proof of insurance for collateralized items, and letters of intent showing that commercial accounts intend to do business with you.
(u)(b)What is the loan process?(/u)(/b) Some lenders like to prequalify potential borrowers to determine how much they can afford. This also gives you and your lender an opportunity to see which loan program would be most appropriate for your needs. After the lender gathers basic information and your application is received, a loan officer or processor will review your credit reports, the amount of available collateral, and your income.
The loan officer will determine if any additional documentation is required. If you are purchasing real estate, you may also need to submit preliminary environmental reports, area maps, title reports, property appraisals, and lease summaries. Next, your commercial loan package is submitted to the decision makers -- either a loan committee or underwriter. During the underwriting process, you may need to furnish additional documentation.
After the underwriting process, you will receive a letter of intent or term sheet. A letter of intent or term sheet is a formal document intended to put all parties (the lender and your company) on the same page. The letter of intent will include the names of all parties, amount of financing, type of collateral, and other key terms. After all underwriting conditions are satisfied, the final loan package is resubmitted to the loan committee for final approval.
At this point, the lender will issue a final full loan commitment. If your loan is approved, you will receive closing documents and they may be handled by a title company. The title company will record deeds and mortgages, order title insurance, coordinate the exchange of funds, and arrange for you to sign the loan documents. At the closing, the lender funds the loan with a cashier’s check, draft, or electronic wire transfer.
Being prepared and organized can save time and help your loan get approved. Be prepared to have all required information ready to submit if your lender requests it.
Jo Ann Joy, Esq., MBA,
CEO The future of your business starts here!
Saturday, November 18, 2006
Thoughtful Decision Making
Decisions are at the heart of all organizations, and decisions are made by everyone at all levels. Some of these decisions are routine and inconsequential, while others can have a drastic impact on our lives, our work, and the people around us. In this increasingly complex world, the tasks of decision makers are becoming more challenging, perplexing, and just plain nerve-racking.
Research has shown, however, that you can be a better decision maker if you adhere to a structured decision-making process. Some things to consider are:
• What are the options and choices available to me; how might I discover others?
• What are the advantages and disadvantages and short- and long-term effects of the choices I am considering?
• Does this decision allow for appropriate and efficient resource management?
• Who else will be affected by this decision?
• What are the consequences of this decision for me and for others?
• Is this decision consistent with my beliefs and values?
When making a decision, a little attention goes a long way. A good decision is never an accident; it is the result of intention, sincere effort, intelligent direction, and skillful execution.
Mallary Tytel
President and FounderHealthy WorkplacesSioux Falls, S.D.
Research has shown, however, that you can be a better decision maker if you adhere to a structured decision-making process. Some things to consider are:
• What are the options and choices available to me; how might I discover others?
• What are the advantages and disadvantages and short- and long-term effects of the choices I am considering?
• Does this decision allow for appropriate and efficient resource management?
• Who else will be affected by this decision?
• What are the consequences of this decision for me and for others?
• Is this decision consistent with my beliefs and values?
When making a decision, a little attention goes a long way. A good decision is never an accident; it is the result of intention, sincere effort, intelligent direction, and skillful execution.
Mallary Tytel
President and FounderHealthy WorkplacesSioux Falls, S.D.
Are You Doing All You Can for Your Business?
Internet advertising has mushroomed into a billion-dollar industry, and this means great things for scrappy small-business owners. The rise of new Internet advertising tools and technologies make it possible for small businesses and entrepreneurs to be front and center with potential new customers surfing the Web—without committing to large-scale marketing campaigns. The popularity of local search is also paving the way for small businesses to grow their local customer base—increasing both awareness and the bottom line.
All of this means great things for small businesses, but what else can companies do to increase their growth without expending a lot of capital?
1. Leverage existing assets. Most new businesses and smaller establishments don't have money to burn on mass-marketing campaigns or flashy Web pages. New technologies, like "Pay-Per-Call," help increase a company's presence and utilize the one tool they already have—the phone.
2. Pay for ads that actually deliver. Today's newest online ad systems allow businesses to only pay for an ad after it delivers a solid lead. This helps keep advertising costs low, while maximizing the amount of exposure online.
3. Utilize the Internet to connect live. Consumers are searching online all the time, but sometimes they actually need to speak with someone before they buy. New online advertising methods that put businesses in touch with a live potential customer are becoming more and more popular.
There are many new Internet advertising methods that small businesses can utilize to generate interest and create exposure to their target audience, regardless of how large or small their marketing budget is.
Marc Barach
Chief Marketing OfficerIngenio Inc.
Small-Business Security Options
Security is a huge concern for businesses of any size. The biggest issue business owners come to me with is reliability. Everybody wants a security solution that allows them to lock down confidential information and ensure that they, and only they, can reliably access it when needed. Biometrics provides solutions that meet both of these needs.
In typical password security systems, if someone gains access to another user's password, he can become that person. If that user then does inappropriate things while posing as the other user, it can create serious problems.
That's where the addition of online-biometric security measures comes in.
With the addition of a fingerprint reader, for example, you can ensure that only authorized users are allowed on the WiFi network. Since every individual's fingerprint is unique and cannot be lost or shared, it is less prone to compromise than a password or PIN code.
Though in the past biometric measures have faced a number of reliability problems due to wet or dry fingers, small fingers, and even narrow fingerprint ridges and valleys, newer technologies are able to read deeper layers of skin so that surface abnormalities don't affect the scan.
Gary Bradt
Vice-President,
Biometrics DivisionSilex Technology AmericaSalt Lake City
In typical password security systems, if someone gains access to another user's password, he can become that person. If that user then does inappropriate things while posing as the other user, it can create serious problems.
That's where the addition of online-biometric security measures comes in.
With the addition of a fingerprint reader, for example, you can ensure that only authorized users are allowed on the WiFi network. Since every individual's fingerprint is unique and cannot be lost or shared, it is less prone to compromise than a password or PIN code.
Though in the past biometric measures have faced a number of reliability problems due to wet or dry fingers, small fingers, and even narrow fingerprint ridges and valleys, newer technologies are able to read deeper layers of skin so that surface abnormalities don't affect the scan.
Gary Bradt
Vice-President,
Biometrics DivisionSilex Technology AmericaSalt Lake City
For Small-Biz Owners, It's Tough To Let Go
Expert advice for entrepreneurs contemplating a new life
Small-business owners, many of whom started their companies and nursed them for decades, often have a hard time living the life of a retiree. National Correspondent Mark Morrison spoke with Eric Sundstrom, co-founder of retirement-planning service My Next Phase and professor of psychology at the University of Tennessee, about the special challenges entrepreneurs confront as they near retirement age.
How is an entrepreneur different from a corporate employee in planning for retirement?
The main difference is in ego investment -- psychological involvement in the business. Small-business owners and entrepreneurs are involved and invested and personally identified with their businesses in ways that employees in large companies just aren't.
When should they start thinking about retirement?
It's hard to say when, because they don't feel the same pressure as an employee to retire by a certain age. They make the rules, and they don't have to retire if they don't want to. It's rare for a person to walk away from the business unless they want a child to take over.Otherwise, if they show up on our doorstep for retirement counseling, they are usually being forced to slow down by some kind of physical infirmity or other factor that makes it impossible to keep on doing what they've been doing.
When is the best time to plan an exit strategy?
I don't think you can start too soon. You need to look far forward: "When will I likely not be able to do everything I'm doing now, and who will take my place?"
Can you give us an example of a small-business person who made a successful transition to retirement?
A marketing executive, a member of a retailing family, decided to do a family genealogy. She went about it much the same way as she did her marketing job and replaced her career with a new pursuit that would take a lot of commitment and social engagement. The focus of this work was to satisfy the family's interest in its roots instead of the old focus on satisfying the customer.
And the opposite -- a plan that fails?
In one small food-processing company, the head of sales has envisioned sitting by the lake in a cabin he has built. He's about to flunk retirement because he's leaving a job in which he has contact with people 10 hours a day.I've tried to dissuade him, but this is his dream, and he thinks this is what retirement is.
courtesy : Business Week Online
Small-business owners, many of whom started their companies and nursed them for decades, often have a hard time living the life of a retiree. National Correspondent Mark Morrison spoke with Eric Sundstrom, co-founder of retirement-planning service My Next Phase and professor of psychology at the University of Tennessee, about the special challenges entrepreneurs confront as they near retirement age.
How is an entrepreneur different from a corporate employee in planning for retirement?
The main difference is in ego investment -- psychological involvement in the business. Small-business owners and entrepreneurs are involved and invested and personally identified with their businesses in ways that employees in large companies just aren't.
When should they start thinking about retirement?
It's hard to say when, because they don't feel the same pressure as an employee to retire by a certain age. They make the rules, and they don't have to retire if they don't want to. It's rare for a person to walk away from the business unless they want a child to take over.Otherwise, if they show up on our doorstep for retirement counseling, they are usually being forced to slow down by some kind of physical infirmity or other factor that makes it impossible to keep on doing what they've been doing.
When is the best time to plan an exit strategy?
I don't think you can start too soon. You need to look far forward: "When will I likely not be able to do everything I'm doing now, and who will take my place?"
Can you give us an example of a small-business person who made a successful transition to retirement?
A marketing executive, a member of a retailing family, decided to do a family genealogy. She went about it much the same way as she did her marketing job and replaced her career with a new pursuit that would take a lot of commitment and social engagement. The focus of this work was to satisfy the family's interest in its roots instead of the old focus on satisfying the customer.
And the opposite -- a plan that fails?
In one small food-processing company, the head of sales has envisioned sitting by the lake in a cabin he has built. He's about to flunk retirement because he's leaving a job in which he has contact with people 10 hours a day.I've tried to dissuade him, but this is his dream, and he thinks this is what retirement is.
courtesy : Business Week Online
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