As a small business owner, you understand the importance of capital to your business. After all, strategic plans and projections won’t mean much if you don’t have the working capital you need to fuel your plans for growth. Which is why we at Pacific Community Ventures designed our loan program to offer affordable, transparent capital and flexible terms that work with you and your business.
As we approach a new year of small business lending, we can’t help but reflect that there are some things that—time and time again—prove to be true about the lending process. Read on to discover the 4 things we know to be true about small business lending, and get an insider’s look into accessing capital.
[custom_headline type=”left” level=”h3″ looks_like=”h4″]Awareness is Everything[/custom_headline]
When it comes to presenting yourself as a smart, solid candidate for lending, awareness is everything. Meaning, a savvy business owner understands all of the intricacies of their business and can explain them very well. Sure, as an entrepreneur, lenders expect you to be visionary, but it’s also important to see that you have a grasp on intricate details. Small business owners who know how long it takes to produce XYZ, who can break down the value of their work and know how to best spend their time—come off as impressive and tuned-in.
One problem lenders often see with business owners is that they rely too much on an outside person or persons. Hearing, “oh, you’d really need to talk to my CPA about that” when asking about a balance sheet is a red flag for a lender. For a lender, having trust and confidence in a borrower is important, and how can someone trust you as a small business owner if you can’t explain a major issue in your profit and loss statement? The answer is: most can’t. In this same regard, a good business owner knows what they don’t know—and they are comfortable with either asking for help in order to learn, or taking the initiative to learn themselves.
[custom_headline type=”left” level=”h3″ looks_like=”h4″]Partners are Truly Partners[/custom_headline]
One misconception in small business lending is that partnerships don’t matter, but they do. In order to get a loan, it’s important for a lender to get buy in from all of the partners involved in a business. One way to accomplish this is to get partners to provide a personal guarantee, which is a document that says all of the partners are 100% committed to repaying the loan. For lenders, this is a sign of good faith.
The reality is that most lenders will not approve a loan unless all partners of 20% or more sign a personal guarantee. A lot of small business owners overlook this detail when applying for capital, and once they stumble upon it, often times the process gets delayed or they fall off of the lending radar all together. Don’t let this happen to you. When considering a small business loan, talk with your partners first, and work together to come to a consensus and reach mutual buy-in.
[custom_headline type=”left” level=”h3″ looks_like=”h4″]Education is Key[/custom_headline]
In addition to the partnership talk, there are some other “first things first” to consider. One being: what kind of small business loan is right for your small business? In today’s market there are more options than ever before—from traditional bank lending to micro loans, from credit cards to crowdsourcing—its important to not only find capital for your business, but to find the best type of capital that will support sustainable growth.
Too often than not we see small business owners rush through the research aspect of lending. This is why “quick cash” from predatory lenders, such as the merchant cash advance, are growing in popularity; and sadly, the high interest rates attached to this kind of capital often do a business more harm than good. Be sure to educate yourself on the safe alternative lenders out there such as Community Development Financial Institutions (CDFIs).
As a certified CDFI, we at PCV have seen how the flexible terms and conditions work well for small business owners who may not yet be strong enough candidates to secure a bank loan. Remember, CDFIs are community lenders, so whether your business’ location is urban or rural, there are safe lending options available to you.
[custom_headline type=”left” level=”h3″ looks_like=”h4″]Character Gets Reviewed Too[/custom_headline]
In addition to getting all of your paperwork reviewed, keep in mind that your character is under review too. (This is a unique aspect of alternative CDFI lending that sets us apart from banks—we really get to know you and your business.) Sure, you may not have a flawless credit score, but are you responsive in communications, do you turn in documents when you say you will and have you been transparent throughout the process? All of these factors matter to a CDFI lender, because it can signify if you’re responsible, reliable and truthful.
The best advice we can give to a small business owner is to be upfront. If you have a business blemish, do not try to cover it up because lenders will find it every time. And when a small business owner does not disclose something, it makes their potential lender doubt all of the other information he/she has given.
Take the opportunity to instead be transparent and upfront about your concerns. The right kind of lender will not only work with you, but your honesty will up’ their assessment of your character. Not sure how to handle certain blemishes and/or improve on them? Keep in mind that most community lenders offer mentorship too. It’s a package deal that can strengthen your business—not just to secure capital—but to solidify your future.
[custom_headline type=”left” level=”h3″ looks_like=”h4″]We Want to Help![/custom_headline]
As rewarding as your work is, running a small business is difficult. We hope this roundup of insider tips are helpful to you, no matter your business stage or current need for capital.
Thinking it’s time to explore a small business loan? Let PCV help you navigate your capital needs! We’re providing affordable small business loans of $50,000 – $200,000 to California businesses. Make a quick click to see if you’re eligible and read about the ways in which our small business loans are different.
In the meantime, want to get some free advising for your small business? Be sure to sign up at BusinessAdvising.org, where you’ll get one-on-one advice tailored to your business’ unique challenges.
The powerful paring of lending and advising is what PCV is all about, let our unique combination of support work to make a difference for your small business, its employees and community—today!