If you are planning to finance your growth, either by purchasing a building or new equipment, obtaining a line of credit, completing tenant improvements or acquiring a new business, make sure to include the key steps below in your planning.
Step 1: Consult with your CPA
to ensure that your financial statements are completed in a timely and accurate manner. Too many deductions resulting in a negative net income could hurt your chances of getting a loan.
Step 2: Consult with legal counsel
on the best structure for your business. This consultation is also important for you personally should your financing involve acquiring real estate.
Step 3: Do your homework.
This is critical so you can clearly articulate the amounts of funds needed, the use of funds, and why this use of funds would be good for your business.
Step 4: Establish a relationship with your bank
or ask a trusted colleague for a recommendation. Get to know what industries and lending limits are most comfortable at the bank of your choice.
Step 5: Know your 5 Cs of credit
--credit, capacity, conditions, collateral and capital.
- Credit. What is your credit score and your credit history? If there are derogatories, be upfront and be prepared to explain them in writing.
- Capacity. What is your business and personal ability to repay the loan, as well as your existing personal and business debt?
- Conditions. Are the market conditions conducive to an expansion or new venture of the nature you are pursuing?
- Collateral. Is there ample collateral to cover the loan by a 1:1 ratio?
- Capital. Is there capital available to inject a down payment or other form of equity into the transaction? The SBA minimum is 10% of the project amount.
SBA loans are a great option for financing expansions. For fixed asset improvements, the borrower down payment is as little as 10% and rates are fixed for 20 years. As a non-profit CDC, AmPac works with a number of lenders, CPAs and attorneys and is happy to make referrals.