Speaker: Be prepared when seeking funding for business

When it comes to getting financing for a business, the key is to be prepared.

Make sure your credit rating is good, have both a business and a financial plan ready and establish a good relationship with a bank.

Those were some of the core factors underscored by Edward Knox of the Small Business Administration and Jim Young of AFC Asset Management.

The two spoke Thursday evening to about 25 entrepreneurs at a program sponsored by the Frederick Innovative Technology Center Inc. and SCORE. Douglas Allen, chairman of the local chapter of SCORE, which offers free counseling to entrepreneurs, introduced the speakers at the Claggett Business and Conference Center in Adamstown .

“The Golden Rule today is those who have the gold make the rules,” Young told the group. He recommended having a financial plan for the business, whether a startup or existing one, with a five-year outlook.

“You need to show a lender where you will be in that timeframe,” Young said. “You have to show a best- and worst-case scenario. Show that you are putting forth your best effort and the management team of the business is critical.”

While the SBA has financing programs, Young said there are alternatives such as using personal funds, bringing in a partner who has money and borrowing it from family and friends.

“Take a candid look at the business. Look at the value of your business to the community. Look at the competition, show a potential investor you have done that research,” Young said. “Explain why your business is unique and where its potential growth is.”

Both Young and Knox said having a good relationship with a bank is paramount. The SBA doesn’t lend money directly, but through banks and other lenders who work with the federal agency.

“Go to your own bank first. Ask to talk with a commercial lender or the bank may even have someone who handles SBA loans on a regular basis,” Knox said. More lenders work with the SBA, Knox said, including smaller banks.

“The lender will look at the cash flow. You won’t get the money if your business is losing money,” Knox said. The lenders will want collateral, such as a house, property, other things of value equal to or close to the amount being loaned.

“If your house is in your spouse’s name, they have to sign a waiver that the SBA can take the house if the borrower doesn’t pay. The way we look at it is if the spouse is not willing to put their name on the line, why should we lend you tax dollars?” Knox said.

Make a good impression, Knox said, make sure the business plan and financial plan are both free of typos, brief but contain the necessary information and easy to read. “Don’t give a banker a 50-page document. Make it 12 pages or less and no fancy colors or type fonts. And be ready to tweak the plan after talking with the lender, they may have recommendations,” Knox said. “Don’t start a business without adequate financing.”

If you do fall into problems after getting the loan, talk to the lender, vendors and others about it right away. In most cases, payments can be negotiated, Knox said.

source : http://www.fredericknewspost.com