Segment 7 - Lending Sources Made Easy & Actionable
Now we're going to dive a little bit deeper in these next segments we're going to cover what lenders really love so I know we talked earlier about what are their expectations were going to cover that um online revenue loans if you have a website and you have credit card sales are there ways for you to finance that and get loans based on your online revenue loans? We're going to cover that all kinds of s p a loans most people are not aware of all the opportunities different credit facilities that are available through the s p a even that might allow somebody in our audience today to build that music studio they've always wanted her that film so odio it may be possible through s p a lender's and what's all about asset base loads I'm all about building big, profitable valuable businesses and sometimes even though we're not there today, these types of loans that were going to talk about could be a part of your future and we're here to win power you as that wonderful cash mixologist so you ...
know different types of loans as well as investors to meet your needs as your business grows. So even if you're not there today don't assume that in a year or two years from now you might not be there so let's get there there that's the most important thing ok, we get that help my sales are growing I get this these kinds of questions to my 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 p a is where you would get an espy alone it's not the case so here are some re sources in your region or nationally that are available for larger size 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 espy a loan that seems kind of odd right? You're walking in the same bank and you could get potentially two separate applications so it could be walking a chase or bank of america you can ask bank of america to be your borrow to your lender or you can ask them to give you an application for an espy a lone what is the difference when you're talking to this same person and I'll tell you with espy 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 p a to motivate community lenders and even national banks that might know want to normally bother with you to say andrew, I love your business you want to borrow five hundred thousand dollars for expansion and that lender might be motivated to lend to her all because the u s government says to that lender I the u s government will back in case she defaults the u s government will pay some portion of that debt back to the lender so that's what an s b a loan is about you don't with the exception of emergency loans you know in the state of emergency which I'll go into later but you're not going to the espn s p a office for alone while they may have some applications there know it starts with your local bank which could also be a national bank not all banks in america are quote s p a business partners not all most of the big guns are um and you may apply to two or three different banks all in your community some lenders may give you a better deal than another one interesting huh that's why I like to shop it's not necessarily so that the uber large banks are going to offer you the best credit terms even under the s p a program, sometimes you can get a better deal from a small community lender. The point is shop, but you see that most important buffer for companies that air just becoming creditworthy and just earning their stripes and just and she inching into the point where they qualify for these loans. The addition of the s p a guarantee is enough to motivate the bank to provide that loan it's a little extra security for them just in case something goes wrong with alone. How many people knew that all know so well what can your local espa office do for you? Or by the way, the s p a has regional websites that are really worth going to a lot of times in every state you'll have an s p a office that will list their partner banks now s p a loan officers and people were 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 dio so how do you find out what's worth your time and finding that lender who's going to most likely say yes to you here's my inside tips number one find out who's doing the most activity so asked the lone official a different way whose whose book in the most loans that'll 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 p a loans nationally it's more important for you to know which banks in your community in your state or the most active 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 s p a website, they will list their partner banks and that's your go to list if you want a head that direction questions on this pretty easy yeah, and as another source of loans, larger loans and it could be toe helped by a business to help buy a building to help retrofit a building, we're going to go through them more things are possible that I bet you've never thought were available to you regional finance companies um, they can offer the same types of loans not by by the s p a, but I don't want anyone to have the impression that s p a back loans are their only option. It's his 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 or just finance companies that might specialize in equipment leasing that is might specialize in providing receivable financing or inventory financing and they're out there ok, he may have websites as well those are the big guns ok let's go back to espy a loans and again s p a loans means small business administration, 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 p a dot gov. All right, there are two primary loan programs that are available to start up entrepreneurs and advancing small businesses, and that is under the umbrella of seven a loans and five o four loans. So if you go online at the s p a and search on either of those two things, you're going to immediately be taken tio applications more information that I can ever cover in this segment about these two loan programs. But these are your great guns the's air the two to remember what's kitt what's the potential of their seven a loans working capital loans. That means if you want to fund your company's receivables receivable is when a customer you've build forest service or sold a product or delivered a product in that customer owes you money that is called a 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 a million dollars and that is a quote great receivable that would qualify for receivable financing inventory financing let's say toys, shoes, furniture, anything with tangible assailable value. That kind of opportunity is available through the seven a loan program and in some cases five of four but primarily under seven a advantage loans. There are special programs under s a t s p 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 county's and so forth and every state but the's air things that are available and easy to find out about export loans, new programs we want businesses to be able to sell their products and offshore the loan programs just set up for that. When I was starting my business I was advised not to go to s b a because of the combination of the red tape and the time was tremendous. It has that changed well, all right, here's the one thing I caution about whenever somebody says to you, I think the s p s kind of old fashioned right here or whenever somebody gives you business advice here's what I'd like you to toe and it could be on any subject why not ask well what is your specific experience with that? Is it hearsay or based on actual experience? Is it a been there done that person giving you advice where somebody who's heard about it if it's the heard about here say don't pay attention to them it's amazing how much time I have to spend unwinding people's impressions about lenders investors and what this person will do and not tio qualify them now here's my viewpoint on the espn and I'm going to get to it what do you think is a fair period of time after you give your loan documentation and submit and say I want fifty thousand dollars what's a reasonable time do you think once you have your full application and for them to give you an answer an answer I would say within two to three weeks okay and that seems long to you or a good period that would think that would be ideal okay, so under the express seven a program you're going to find out in thirty six hours oh ok now that that blows that myth all the heat so you are now empowered shoppers when somebody I like to qualify you know if I have a legal issue you talk to a lawyer who specializes in that too often you know when we started out um this morning um I said so often people don't pursue their dreams in business, especially if they don't have cash because they've heard it is impossible to raise money from lenders or investors, it won't happen won't happen for creative people, it won't be there and I'm here to say you're wrong, it is possible look at all the resource is we talked about so far, so be that smart shopper qualify who are you hearing this from? Do they have direct experience? How can you learn from it? And if they're just trying to be helpful? Say ok, and then you find somebody been there done that, or go to the s p a duck of yourself or like the one woman online who was wonderful and said she never thought to go that extra step and look at that loan application that could have been a great deal. We don't know, but ask the next question why? Why, what, how, how much we can do that it's not at all beyond our capabilities. So what I do know is, especially since the recession, there have been a number of initiatives within the s p a and it's broad rage to streamline loan process, minimize paperwork, speed up applications now remember the s p a is not the point you go to the bank first right now what is helpful is you will slow down the process if you applied at the long wrong program for the wrong funding amount at the wrong time, right? So you want to match what you need to the right program, right? So for it to quit, you know, some loan programs are for and the pricing is geared to five hundred thousand to five million well, don't apply there if he were offer asking for something less right, and they're different fees associated with these programs that apply based on loan size. So you do have to do a little bit of matching up, and I will say, if I can go to the fda website and understand it, then everybody in this audience can and you do not need toe have advanced, you know, business degrees, it's very straightforward language. Now, some of the applications will include some language that we're going to go over, so I want you to know what they mean, but don't assume bad things if they haven't happened has that sit with everybody, and I'm not a paid spokesperson for the other way. It may sound like that all I'm saying is let's, include them on your shopping list and be aware of what they d'oh and the prices they charge. There are some disadvantages of certain types of s b, a loans and some amazing advantages, especially on if you're building a factories or retrofitting buildings and so forth they're pros and cons of just getting a straight mortgage versus and s p a backed loan there have been questions very specifically specifically about spf clothes from cashes clay the same what type of credits gore do you need? Is there a minimum loan you can get on? Do credit unions work with espn um credit unions could possibly if they're kind of community based there's a good strong possibility yes that they are s b a loan lenders they must be partners with the s p a right usually community banks will list on their websites if they rsp a lender's you know it's not too hard to find out so I am a big advocate of you know going local because a lot of times they're most motivated to work with you and let's face it community banks have the most incentive in helping the local business become a major employer so start there and ask are you an splm? But I would also say let's stay tuned and now they know it's one source it is a great motivation for a bank in this day and age to have that s p a backing you can see where that they've goosed the motivation to help get cash into small business owner hands because it because you know let's face it when you have cash you get to employ more people minimum loan it really depends on which program you're applying for so equipment loan building loans or different than equipment loans and working capital loans um it's so easy at s p a doctor love each one is listed exactly I've got one slide coming up for veterans that shows the minimum and maximum that's not too far off from other seven a and five o four plans I would say in general if you're looking to borrow twenty five thousand or more I certainly would have it on your shopping list anything below I would probably start out with micro loughner microloan entities first because you're going to get your least amount of administration ability to pay off without any pre payment pelin italy's and likely lower cost interest terms and lower credit score requirements so the smaller ad micro loans in your shopping list as you advance you can still continue to stay with microloan companies because you can go up to thirty five thousand dollars and there's some biz new kinds of businesses if you're involved in child care for example their special micro loan programs just for people want expand child care programs as their main business so I'm sorry to be vague it's just there are so many different programs that are out there with different minimums and maximums and rates and so forth will get into a few of them but again seven a m and five o for those two action items for your searches at s p a duck of so when you're searching, you could land on of lenders website my strong recommendation is as you're researching these, if you end up at other websites, they could be seriously out of date it with what the current loan programs are that are backed by the s p a they're changing and expanding all the time just remember what I said about an hour ago I just got a press release from the espy where there again spanned ing the qualifications to include more people, more types of businesses and they do this all the time, so they most likely source it's going to be up to date is s p a dot gov not affiliates or not people not finance companies that want to trick you to come to their world and shock you with their of interest rates right? But we're now smarter, right? Okay, I'm going to do a shout out to my favor. Veterans most veterans who returning from amazing military service are not aware that they have a special program through the s p a again s p a back loans as long as it's fifty one percent veteran owned but this will give you a sense of how fast the s p a is b is becoming much more accommodating to business owners veterans can apply for loans up to five hundred thousand dollars they get slightly lower interest rates, I put this up. It is example to give you a sense of what you might be paying slightly less than veterans. But I want veterans to be of oil available and aware that there are special programs out there just for them. There are millions of people have come back home, and this is a great program for them if they wanted now could pursue a career as a business owner and they get decisions in fast thirty six hours. Now, let's talk just for a second before we dive off this because there are some flown programs. As I said, the express loans, you get that thirty six hour response rate. What were the circumstances when I worry about business owners making fast decisions, it's 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 maybe to go into partnership with somebody what scares me and again, all by 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 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 fifty thousand or one hundred thousand dollars when I know better that you would not be able to turn off the next day and sell that franchise for ten thousand dollars, what you've now done is borrowed money to buy a business that's not worth much, but all s p 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 is 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 who 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 have thirty six hours it's in red, it could be a good thing or a bad thing know what you're buying no, which your cash is being used for, 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 four 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 second one is the security agreement 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 toe 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 um 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. Now we're in downtown san francisco, right? Imagine if you have developed the coolest technology or your code is patentable and you wanna license it to somebody else, but you've got some blankets, security agreements those are some of the wrinkles that contribute up be aware that there is a difference between blanket versus specific. So what is the 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 rights whatever you're signing, it could be a distributor agreement oh, never all make them earn all right the's air the kinds of buzzwords in contract to pay attention to and understand the full implications off. All right, everybody's 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 theology, ations alone and lastly 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 it'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 air 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 him 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 in fees, your pain I want you to be alert any pre payment penalties so that if you want to pay it off because you find a lower cost lone source you're aware of it it's like cell phone exit charges right no it right some have them in some down 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 him force you to do it don't offer to begin with you are the borrow not you and your spouse right how's that for empowerment uh minimum draw downs 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 is 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 dio 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 amid amount each month or each quarter we can charge you this faith right? So you read so it doesn't seem fair that g if I'm not using I'm paying for it but from the finance company's standpoint, they may say if I have to reserve this amount of cash for you to draw down at any time, I want to be compensated for saving that cash just for you that is a very, very common deal term now too much with banks but certainly finance companies to be aware of isn't negotiable sure negotiate what dollar amount that isthe and maybe not in the first year whatever pay attention to it you don't want surprises and that's a common area for surprise typically it's really hard on if you're selling merchandise that is very trendy in the fashion world um or merchandise that can lose its value very quickly become dated very quickly. You may not get on advanced rate as it's called on inventory as high as fifty percent it's very rare that you're going to get more than that. Why is that? Lenders are afraid that either your products will not be so by retailers and sent back or they may become worthless down the road unsalable merchandise and they don't want to own that merchandise so they give you a haircut of fifty percent if they sends its too trendy or loses value quickly um it could drop down further so let's say you are a gardener, right? And you uh so wholesale all kinds of tulips and so forth what's the value of the tool ups in four months on a lot certain types of food items become dated beverages could become dated within a year, so certainly you're motivated to sell them before the end aid lenders air saying they may be asking questions so if they're asking you questions about the nature of your product know why they're doing so and their questions are going to be motivated and they're going to be looking for you to give them feedback of how your products never lose their value. Those are the buzz words and action I'm so if I'm lender, I want you talking to may and reassuring may about your products how you know your toys, they never lose their value, right? But actually is a beanie baby is valuable today as it was maybe five years ago collectibles are dicey, right? So a market value may still not be they may still give you a haircut just to provide more coverage just in case that's their motivation when they're talking to you about the inventory. Those are the questions things that you want to highlight, so if you're making proposals, I certainly would include some talking points of the value of your inventory. This is how you get maximum credit with the lowest interest rates make them feel good about what they're lending against inventory, they don't want shoes that no one will buy next year any questions on that from people come in you know we've got a very specific question about the actual terms from across the water there saying as faras contracts for loan packages et cetera how long do the banks or lenders give you to render story we give you to read through the documents as a whole when you're applying for capital loan deals? My view is you never sign any contract you should not be seen it for the first time when you're asked to sign it yeah just say ok I'm going to take this back send it in advance she you know the kinds of places that will put a document expect you to sign it right then and there are those kinds of finance companies that we were talking about earlier sign him up give you the cash and by the way it's going to take you a few months to figure out what shocking loan terms you sign but for the most part you can ask a lender right up front now they're going to want to give you a package and loan terms the best match your business they may be a little uneasy about quoting you something before they have seen something about your business which actually can work to your advantage why don't you just selling your company's strength giving them confidence that your inventory is not going to be worth close next year your receivables which we're going to head into now I wantto run through some things of how I want you talking about your customers. These are the things that may impact their ability to quote, and I would always say, a business owner's best position with lenders is not necessarily the first loan, but when, as you become more successful when other banks want your business, and unfortunately, the existing lender is not kind of probably give you your best deal. It will come from the guy who wants to take your loan, you know, and start you out with a new package and again, it's all about shopping, he said it earlier. Women don't shop for loans. We've got a shop for loans, even though it's convenient have your personal accounts right next to your business accounts. It may not be your best deal, and you could be losing hundreds of thousand dollars every year unnecessarily so that's our motivation? I can't speak specifically on a lot of international loans, but there is no way I would sign a loan agreement without taking it away to a safe place and reading the details, you know? And if it's an online relationship so you print out, I would be very uneasy and we're going to talk about some scams online coming up, um, you should be able to print out those applications online and read them and I really encourage everyone to do that because it's much harder it's kind of like what editors say they don't see mistakes aziza leah's if they print out a document same thing in loan terms it's too easy to just hit this scroll scroll social sure no one is gonna watch out for you better than you no one's gonna watch out better for your business than you so if you go to an online finance company and just see that application and click I agree shame on you don't send me a note saying how do I get out of this? You know better be aware that should tell you something about that online lender if the application is a scroll scroll psychosocial and the fine print is not ledge a ball that should be your warning there's stuff in that fine print that you need to focus on to understand because that's where the rial cash costs are buried and remember most finance companies they're not under the consumer credit laws we talked about earlier what they're doing is legal in most cases right? Because I'm I hope I answered this question I mean there was a quick follow up here do you also have a lawyer an account and always look over those agreements as well uh I want to first of all you but I don't want you spending money for a lawyer when you should be the first pass to rule out bad deals ok, so that's a starting point I want you looking for the rate you should find the rate by yourself you should find the fees by yourself you should find what your obligations are in pre payment issues and so forth so if I don't want every application you're calling up a lawyer and then you're getting a bill you know I don't want to build that dependency when I know your better judgment can prevail so that's number one I think it's more important on lending agreements especially is less sophisticated lending agreements to involve a lawyer before an accountant account may not understand the nuance um and I want if I'm going to engage a lawyer toe look over a document I darn well better get a better deal I don't want them to just read if I really want this to happen and I'm paying you I want value for my cash so I'm going to turn to a lawyer let's go back to my been there done that do I talk to my buddy golf but you know partner who is a real estate lawyer primarily to understand the nuance of a lending agreement now I'd like to hire they're going to charge the same mouth somebody who negotiates and sees these kinds of loan agreements all day long as we're going to talk in future segments who's your best negotiating partner for selling you know an equity stake in your business a securities attorney not a real estate attorney but that's what people dio convenience not necessarily most cost effective and then down that if you have to pay the bill get experience black and white because then they're going to deliver more value for you right my scolding I don't mean to be I want everybody to feel like gosh, I can do that I can ask for a better deal I can take advice from somebody who's been there and done that but I love people who negotiate but his first instincts where I need to read the document no signing under pressure no some fast decisions can end up into lasting problems um minimum draw downs I think I addressed eligible receivables this is really important and it's going to come up more and more with new pipes of credit credit sources online as well so if you're not profitable more more finance companies are willing to say you know what but you've got customers who can pay a bill I'm going to 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 did 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 to slide coming up that will show you how they size this up ideally you want to keep your average receivables under thirty days if most of your customers pay you in one hundred twenty 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 the customer and they're 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 cost you more to fund that receivable is an instance where sometimes you may have to charge them person more would get a bigger down payment and protect yourself in different ways but not all customers are necessarily going to be your best customers banks love businesses that sell the companies more so than consumers unless the credit card is involved why might that day repayment security payment security eventually they think they're going to 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 eighty percent 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 I you certainly favor products that are easier to get that customer first if it takes you two years to develop this product and 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 it? Each customer relationship for this products are or service where 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, then this one where there's less diversity in 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, too 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 from the questions that investors are asking minimum drawdowns. Not in their world, right? Two different. You know, we are comparing apples to oranges.