In March of 2012, I had the privilege of attending a free community panel on “Funding Your Small Business,” jointly hosted by the Asheville Minority Business Program and Mountain Bizworks. It was at this informative gathering that I met Jane Hatley, WNC Regional Director for Self-Help Credit Union. She brought a wealth of valuable information, perfectly balanced between enthusiastic support for and the stark reality of starting a small business.
Though some of us may be aspiring to build global empires, many of us have set our sights on small businesses couched cosily within the context of our local communities. With this local focus in mind, I took the opportunity to explore small business funding in a bit more depth with Jane. Below is a short video of Jane in her own words followed by a summary of our entire interview.
As Jane and I continued our conversation, we explored those “5 Cs” of credit that she mentioned in the video. And, though each financial institution views the lending process a little differently, each generally agrees that the following are important:
- Character/Capacity—Who is the person or people who are applying for the loan and will be running the business? What is their background in the specific business area and with running a business in general? What do people in their community think of them? And, perhaps most importantly, does the loan officer trust that they are competent and a worthwhile investment…are they trustworthy?
- Credit—This is where your credit history comes in to play. And not in a small way. Jane stressed that this is the place that it’s imperative to be brutally honest with your loan officer. They’d rather hear it from you if you had a bankruptcy in your past and why…
- Collateral—What have you got to protect the investor’s money? Different banks have different needs, so know who you’re talking with. Expect to provide personal collateral or collateral through the business itself in the form of the building/land/equipment/name, etc.
- Capital—this is different from collateral. Collateral is like an insurance policy while capital is akin to putting your own “skin in the game.” What do you bring to the table? No one’s going to lend you money if you haven’t figured out how to raise a little money of your own. Most financial institutions are looking for anywhere from a 10-20% capital investment from the applicant.
- Cash Flow—In the event that your business is already up and running and has a decent track record, bring your numbers to the table. For those of us who are starting something new—bring your projections. The trick with projections is that they be REAL. Do your research yourself—know how to explain your cash-flow projections and where they originated. You’ll need to plan out 3-5 years and be able to talk through them in intimate detail.
I wondered as we chatted how to avoid the common mistakes that many applicants make. Loan officers look at you more deeply than you imagine. They see the whole application process (and accompanying documents) as reflections of the applicant. Jane urged us to avoid the following pitfalls as they reflect very poorly on the applicant and the trust the lender is willing to invest in you:
- Filling out paperwork in a sloppy and fast manner.
- Paying for a “canned” and “slick” business plan, but not knowing anything about the numbers.
- Dream Planning—shooting for the moon rather than creating a “stair-step” plan for growing the business.
- Idealistic Cash Flow Projections—rather than doing research, providing what you think the funder wants to hear.
- Using “canned” market research—do your own research. Period.
Jane also had a list of what you SHOULD do when approaching a potential funder:
- Use as many free resources as possible (don’t splurge on things in the start up phase when free or low cost resources are available.)
- Have patience. The loan process can be lengthy. If you get impatient with the process or your lender, you will leave a bad taste in their mouth.
- Always respond quickly. When your loan officer requests information, get it to them as quickly as you can! They likely have multiple loans on their desk and yours will move up in the pile if you are polite and responsive.
- Expect your life to be laid bare. The loan officer is plying their trade which is as much art as it is science. They want to know all the gritty details of Who You Are in order to trust that their money is in good hands. Be prepared to be transparent.
She stressed that certain businesses have a harder time in our recessive economy than others, so those of you planning on opening a small retail business, a trucking enterprise, a restaurant, or a bed & breakfast need to know ahead of time that banks are wary of your chances of success.
I publicly extend my personal gratitude to Jane and to Self-Help Credit Union for their generosity to our community and for their genuine support of small and minority businesses throughout our state.
