Lending Sources Made Easy And Accountable
help. My sales are growing. I get this these kinds of questions to my uh my email and usually they're all caps with lots and lots of exclamation point help help help. So what do you do? Where do you turn if your sales are growing that's the high price of life. But you don't have the bank account to show for all your success from happy customers. Here's some answers. But first everybody thinks that going to the S. B. A. Is where you would get an S. B. A. Loan. It's not the case. So here are some resources in your region or nationally that are available for larger sized loans. You can go to a community bank or a national bank and sit down with a small business lender. Or you can go into that very same office and sit down with the very same small business lender and say I won an S. B. A. Loan. That seems kind of odd right? You're walking into the same bank And you could get potentially two separate applications. So it could be you walk into chase or Bank of America. You can ask Bank of Am...
erica to be your borrow to your lender or you can ask them to give you an application for an S. B. A. Loan. What is the difference when you're talking to the same person and I'll tell you with S. B. A. Loans, it's all about the national government providing some credit backing to that bank. So especially since the recession, the government has been more and more motivated to keep small business lending out there. That's why they've expanded certain programs through the S. B. A. To motivate community lenders and even national banks that might not want to normally bother with you. It starts with your local bank, which could also be a national bank. Not all banks in America are quote S. B. A. Business partners, Not all most of the big guns are And you may apply to two or 3 different banks all in your community. Some lenders may give you a better deal than another one. So what can your local sp A office do for you or and by the way the S. B. A. Has regional websites that are really worth going to a lot of times in every state you'll have an S. B. A. Office that will list their partner banks. Now S. B. A. Loan officers and people are there who to answer questions and they're great at doing it. They cannot recommend one partner bank over another. It's not what they do. So how do you find out what's worth your time and finding that lender who's gonna most likely say yes to you. Here's my inside tips number one find out who's joined the most activity. So ask the loan official a different way whose whose book in the most loans that will give you an answer right there. So it's less important for you to know if a national bank is giving the largest number of S. B. A. Loans nationally. It's more important for you to know which banks in your community in your state are the most active. All right. That's number one that will guide you and it may be a bank you've never heard of before, Maybe the one that has your best deal. So by going to your local sp a website, they will list their partner banks and that's your go to list if you want to head that direction regional finance companies. Um they can offer the same types of loans not back by the S. B. A. But I don't want anyone to have the impression that S. B. A. Back loans are their only options because again, we're out to shop for the best deal for your specific circumstance. So there are regional companies, they're called. Regional finance companies are just finance companies that might specialize in equipment leasing, that might specialize in providing receivable financing or inventory financing. And they're out there. Okay. They may have websites as well. Those are the big guns. Okay, let's go back to S. B. A. Loans. And again, S. B. A. Loans means small business administration. All right, and how you reach that and learn more about all the loans I'm going to talk about because there's so many more than I can reasonably cover here. S B A dot gov, S B A dot gov. All right. There are two primary loan programs that are available to start up Entrepreneical and advancing small businesses and that is under the umbrella of seven a loans And 5 4 loans. So if you go online at the S. B. A. And search on either of those two things, you're gonna immediately be taken to um applications, more information that I can ever cover in this um segment about these two loan programs. But these are your great guns. These are the two to remember what's what's The potential under seven a loans. Working capital loans. That means if you want to fund your company's receivables are receivable is when a customer, you've build forest service or sold a product or delivered a product and that customer owes you money. That is called receivable, lenders will lend against those receivables when you sell to toys R us, that million dollar purchase order and we know they may not pay you right away. That's a receivable, They owe you $1 million dollars and that is a quote, great receivable that would qualify for um, receivable financing, inventory financing, Let's say toys, shoes, furniture, anything with tangible salable value. That kind of opportunity is available through the seven a loan program. All right. And in some cases 504, but primarily under seven a advantage loans. There are special programs under asset at the S. B. A. Under the seven A loan program for people who are starting up businesses in rural areas of the country or in certain economic communities that are disadvantaged. Who knows? You may live in one of those locations and there may be special lending opportunities just for you. And again, you'd have to go, it's too hard to go through the counties and so forth in every state. But these are things that are available and easy to find out about export loans, new programs. We want businesses to be able to sell their products offshore. The loan programs just set up for that. Okay, I'm gonna do a shout out to my favorite veterans. Most veterans who are returning from amazing military service are not aware that they have a special program through the S. B. A. Again, SB A backed loans As long as it's 51 veteran owned. But this will give you a sense of how fast the S. B. A. is is becoming much more accommodating to business owners. Veterans can apply for loans up to $500,000. They get slightly lower interest rates. I've put this up at his example to give you a sense of what you might be paying slightly less than veterans. But I want veterans to be available and aware that there are special programs out there just for them. Now let's talk just for a second before we dive off this because there are some loan programs, as I said, the express loans, you get that 36 hour response rate. What are the circumstances when I worry about business owners making fast decisions where they can get a chunk of cash in a short period of time? And it may be to buy a business, it may be to buy a franchise. It may be to go into partnership with somebody. What scares me. And again, all my, when I'm uneasy about something, it is because too many business owners said to me at the point of failure, I wish I had known better. I wish I had slowed down. So I suppose a franchise broker comes up to you or anyone in the audience And sells you this amazing deal to buy into a franchise of $50,000 or $100,000 when I know better that you would not be able to turn the next day and sell that franchise for $10,000. What you've now done is borrow money to buy a business that's not worth much. But all S B A loans for veterans were not require a personal guarantee. Very few exceptions. So if you borrow money to buy a business or to do something that is not even worth the cash that you have taken down as alone, who's going to hurt you own that debt. So while I love fast response and we talked about how, you know, when you have opportunities, you want to go for them, sometimes dialing it back, looking at the value of your cash and what you're buying is really worth it. And that's where I I have 36 hours, it's in red, it could be a good thing or a bad thing. Okay. Common working capital deal terms. Very often people say to me, they really didn't appreciate what they were signing up for or what they were funding. When you go into more advanced loans, be it from a finance company or from a bank. They're usually going to be for basic documents that are a part of the loan package. The first one is the basic loan agreement that you will sign that will cover the interest rate, any fees in terms and conditions. 2nd 1 is the security agreement and I know you don't want to read this stuff, we're going to try and make it easy. Security agreement is just saying what the bank or the finance company is now going to have an ownership interest in that collateral. So you may be pledging inventory, receivables, um, other business assets. It could be equipment in your business. Uh, it maybe some of your personal savings accounts, if it is a blanket security agreement as it is called, assume any asset in your business, including patents, trademarks, licensing income that could come from those intellectual property rights. All of that could be covered by a blanket security agreement. Imagine if you have developed the coolest technology or your code is patentable and you want to license it to somebody else. But you've got some blanket security agreements. Those are some of the wrinkles that can trip you up. Be aware. There is a difference between blanket versus specific. So what is, what are some of those things that we might do when we see language like blanket? What do we do negotiate? You dial it back a bit? Blanket is too broad. I don't like to sign deals anywhere where it says All blanket, all territories. All right. Whatever you're signing, it could be a distributor agreement. All never. All make them earn. All right. These are the kinds of buzzwords in contracts to pay attention to and understand the full implications of right. Everybody is very serious right now. Yes. A promissory note. This is simply a statement of saying what you the business agree to pay back the loan amount interest in the obligations that alone And lastly, a UCC filing. This usually is part of a package. Some lenders. I doubt if you borrow money from friends and family members and you say, you know what? I'll give you some collateral in my company's inventory. Good chance that, that your friends and family member doesn't actually file what's called under uniform commercial code. The documentation to actually take a security interest in that property and notify the public that they have taken a security interest in that. These are the four kinds of documents you can expect to be a part of a loan package. So as your company's advance, don't be scared of them. And in some cases you can negotiate them a little bit more to your own advantage. The places you must read, you must read the loan agreement. I want you to know the interest and fees, your pain. I want you to be alert to any pre payment penalties so that if you want to pay it off because you find a lower cost loan source, you're aware of it. It's like cellphone exit charges, right? No, it right. Some have them in some don't security agreement. I want you to know what you've pledged. We've already talked about how I don't like to have both spouses signing these documents, keep it separate. Give financial statements just for you, not necessarily all of your spouse's assets. Why make them force you to do it? Don't offer it to begin with. You are the borrow, not you and your spouse. Right. How's that for empowerment? Uh, minimum drawdowns you frequently find in finance company agreements more so in finance company agreements than loan agreements from banks. Suppose you we did hear from somebody who has um granted a line of credit. Right, okay. What could be a part of a line of credit? Sounds pretty good and sexy. Wouldn't it be great to have a line of credit in place for emergencies? Sounds like a good thing to do. So then you're not going to the payday lender, but it may be in the paperwork in the fine print. There is language. If you do not take a minimum amount and borrow a minimum amount each month or each quarter, we can charge you this faith eligible receivables. This is really important and it's going to come up more and more with new types of credit sources online as well. So if you're not profitable, more and more finance companies are willing to say, you know what, but you've got customers who can pay a bill, I'm gonna borrow there and be paid back by the credit card receipts or by the customers as they pay. You care as much if you're profitable, I want to be paid up here where it's a little safer. So how do they size up anybody who is talking receivables or revenue lending? What are they looking for? Number one Speed of Payment? If you have a service business and you sell to companies or retailers, how fast do they pay you? And I've got a slide coming up that will show you how they size this up, Ideally you want to keep your average receivables under 30 days. If most of your customers pay you in 120 days or six months, they may exclude those customer relationships from your loan agreement. They're going to say, all right, if you want to take the risk and sell to those people or those businesses or local governments, local governments are notorious for being slow pairs. The federal government, I'll take that credit. Local could be scary. So you want good quality receivable. Sometimes when you're working with a customer and there are slow payer, they could be hurting your business more than you realize because their, their debt credit is too hard for you to finance. So it actually costs you more to fund that receivable is an instance where sometimes you may have to charge that person more or get a bigger down payment and protect yourself in different ways. But not all customers are necessarily going to be your best customers. Um Banks love businesses that sell the companies more so than consumers unless the credit card is involved, why might that be repayment security, payment security eventually they think they're gonna pay? They are happier when you have a diverse customer base. It's kind of scary. If you have only one customer, They may not give you that top 80 coverage. So what I love is as you're picking in your target audience, sometimes entrepreneurs will come to me and say, Susan, I have two or three different business ideas, which one should I pursue first? And one of the things I look at is obviously the profitability of product are you certainly favor products that are easier to get that customer first if it takes you two years to develop this product in three months to develop this one, I'm going to favor this one just to get some cash coming into your business. But one thing I increasingly look at, especially in the service world is who are you selling to? What's the size of each customer relationship for this product or service or this one? Because your ability to get financing maybe sized up by who your customers are, and sometimes you might pick this product or service first because you're selling to five or six different companies than this one where there's less diversity and the promise and speed of payment. So all of these factors are now in your brains of how you drive your business and the strategy of what products you sell and to whom, because it might be easier for you to get financing and who you sell to is a big issue to lenders questions on this. So now, you know what they're looking for when they're asking questions and what's going to be amazing is these questions are so very different than the questions that investors are asking, minimum drawdown stuff like not in their world, right to different. You know, we are comparing apples to oranges, right?