The purpose of this piece is to provide a basic road map for obtaining small business startup financing particularly from a bank. However, some points might prove useful to an existing business.
There are three basic business organizations: sole proprietorship, partnerships, and corporations. The simplest being the sole proprietorship. The type of organization chosen depends on the circumstances and makes for the easiest loan application.
What is needed:
• Personal and business (if not a startup) credit histories,
• One year cash flow projections showing how the loan payments are to be made,
• A financial statement as to the loan amount and how it is to be used,
• A simplified business plan,
• A proforma balance sheet and a proforma income statement, and
• Organizational documentation.
As a rule of thumb, after the loan is made, the owner(s) should have at least a one-third interest in the business. In cases where ownership financing is involved, the “old” owner’s retained interests can be counted depending on the lender’s policies. If needed, most banks have a “partnership” relationship with the Small Business Administration. Under the SBA’s 7A Loan Guarantee Program, qualifying loans are guaranteed to the bank up to 80% of the outstanding principal and interest. For more details, visit www.sba.gov.
There are many types of worthy banks. Unless there is a compelling reason otherwise, the best bank to approach is a Community Bank. These banks are locally owned, and loan decisions are made locally.
• Never approach the banker “cold turkey.” Be prepared to respond to his questions even during the first meeting.
• Be prepared to respond to any potential problems.
• Once he says yes, close the subject. Just accept the yes.
Robert C. Ramos is a graduate of Del Mar College and Texas A&M Kingsville. He retired from the Small Business Administration in 1994 and owned and operated The Gabriel Group, Inc., a DOD contracting company, until October 2014.
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Retired from education after serving 30 years (twenty-eight as an English teacher and two years as a new-teacher mentor), Shirley enjoys her life with family and friends while serving her community, church, and school in Corpus Christi, Texas. She is the creator and managing editor of The Paper Trail, an online news/blog site that serves to offer new, in-depth, and insightful responses to the events of the day. She also writes and edits for The Texas Shoreline News, a Corpus Christi print newspaper.