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Financing growth
by Andy Reeves
A primer on how to obtain financing for your business.
Obtaining loans has become easier for growing businesses as banks have become more comfortable with small-business lending. Loans enable entrepreneurs to leverage the money they have and increase the value of their equity more quickly. Still, it is wise for small-business owners to explore various financing options and select ones that best suit their needs.
Here are a few things to consider when seeking a business loan:
• New or young businesses - those less than two years old or that have been profitable for less than two years - will usually have better luck securing loans from private sources such as friends and family. Generally, these types of companies will have a difficult time obtaining loans from institutional sources and banks. However, some banks allow business owners to put up collateral, such as the equity in their homes.
• Profitable businesses should consider the Small Business Administration's (SBA) guaranteed loans program. The SBA is a federal agency that provides small businesses with advice, financing and other business-development aid. The SBA does not lend money. Instead, it guarantees loans for which small-business owners apply and receive from a bank or finance company.
• More established businesses have an easier time obtaining loans from institutional lenders such as banks. These businesses can turn to lenders not only to expand their companies or to purchase equipment but to finance operating capital and smooth their cash flow.
• Credit lines enable businesses to better manage cash flow. Establishing a line of credit allows a business owner to draw on funds as needed for routine operating expenses. Lines of credit usually carry interest rates that are lower than those of credit cards but higher than those of bank loans.
Credit lines, like bank loans, are usually only available to profitable, established businesses and can be secured or unsecured.
• Open a business checking account with a bank that has a reputation as a small-business lender and take advantage of other business banking services such as money-market accounts. Established accounts give companies a better chance to get their foot in the door with their banks.
As is the case with all transactions with financial institutions, small-business owners can make the process easier with preparation and planning.
Here are some tips:
• Demonstrate that the company's management understands its industry and the strengths and weaknesses of its business. A solid business plan is important.
• Organize corporate financial documents, including business tax records and the owner's personal financial statement, for the previous three years. Companies that prove they are well managed and profitable can move quickly through the approval process. Incomplete documentation often stalls the approval process.
• Speak with bank executives to find out companies they target. Some banks shy away from certain industries.
• If the business has a blemished credit record, try to clean it up before applying for a loan. If the company has a marginal credit record, only apply for loans from lending institutions that accept companies or people with marginal credit.
However, you should expect to obtain loans with higher interest rates.
Finally, it is important to realize that most of the densely populated counties in South Florida have community-development organizations or empowerment zones that encourage the revitalization of local neighborhoods. These entities can provide business owners with information about how to obtain state and federal funds. In some cases it may be better to seek financial help from more than one organization and then pool resources.
Andy Reeves is vice president and manager of the BankUnited's Sarasota branch. BankUnited Financial Corp. (NASDAQ: BKUNA) is the holding company for BankUnited FSB, the largest banking institution headquartered in Florida with assets of $14 billion. BankUnited provides a full spectrum of consumer and commercial banking services, mortgage and loan products, and investment and financial planning services. For more information, call (877) 779-2265 or go to www.bankunited.com.
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