When people start a business or have an existing business and are trying to expand, they often look for a business loan to assist them. Cash flow is one of the biggest challenges for starting and growing a business. Cash flow gaps occur in every small business. These gaps, or the need for capital to expand, lead many business owners looking for loans to secure capital. This process can be daunting and difficult to navigate.
Pine Tree Connect reached out to our member, Southern Maine Finance Agency (SMFA), and spoke with President, Will Armitage, for guidance on this subject. SMFA helps businesses get the financing they need throughout the state. They often partner with lending institutions to provide gap financing to make a loan package come together for a business, and offer lending in circumstances that may not work for a traditional bank.
This article will provide you with the #1 thing you need to know to make small business lending easier and more straight forward, along with several other helpful pieces of advice.
Many small businesses don't realize that there are many free resources available to them, and this is a great place to start.
If you're a small business owner looking for help, these organizations have a lot of tools and resources to help businesses get the help and answers they need - and they are FREE! The SBA (Small Business Administration), the SBDC (Small Business Development Center), and SCORE (Service Corps of Retired Executives) all offer resources, advice and benefits for small and mid-sized businesses. Each organization offers different business services, but they each exist to promote and encourage small businesses in some way. Business owners and entrepreneurs can reach out to all three organizations for assistance and guidance with matters such as business planning, business financing, human resources, or launching a brand-new company.
A business plan sounds like a very overwhelming task and feels like too much of a chore to many small business owners. However, developing one doesn't have to be as menacing as you might think. Here is where reaching out to those free resources mentioned earlier makes a lot of sense. They have counselors that meet with business owners, and people thinking about starting a business. These meetings allow you to test the validity or likely success of your business idea. Counselors can walk you through the process of developing a business plan. These organizations also have business plan templates and samples you can use as guides.
Will describes them this way. "Just having someone to use as a sounding board and to walk you through what you're thinking of doing is tremendously helpful. They can help you show your idea is feasible, or work with you to determine areas you may need to do a little more research on."
Going through the process of writing a business plan helps a business owner decide if their idea is really something worth doing. Perhaps the market you thought existed really isn't what you assumed, or maybe there is more (or different) opportunity than you originally believed.
The process of developing a business plan takes a concept or great idea and makes people step back and really make sure that it's a viable idea. When you get together some numbers to back up an idea, you'll either find that there is a market for it and you can pursue it, or that it just doesn't make sense when you put it all on paper.
"The example I always use is: somebody wants to open up a sandwich shop. They've done their projections, then they find a location on a side street. Their plan is to sell 100 sandwiches a day to make their financials work out. Then you consider, is it really viable to get 100 people through the door every single day and sell 100 sandwiches on a side street? That's probably not realistic. Versus someone who says they only need to sell 10 sandwiches to cover costs and anything above that then becomes profit. Or they have a location on a busy street so 100 sandwiches might be doable. You make assumptions in your business plan, then you need to be able to explain them through the market analysis. Financing aside, many businesses fail because they skipped the business planning effort, and, unfortunately, going on high hopes doesn't bring money through the door and they fail."
Will advises people that a business plan isn't a 30- or 40-page complicated document. It can be 6-8 pages. The important thing is that is clearly describes who you are, what your business is, your financial projections, what's going to differentiate you in the marketplace, who your competition is, and how you're going to market it and bring people through the door. That's really the highlights of a business plan. This is an important thing to point out because often the assumption is that it's so much work. Pople don't know where to begin, they don't think they can write well, so they don't even start. Maine is rich with small businesses that grew from great ideas, and the difference is often the business planning process. Again, take advantage of all the free templates and resources that organizations like the SBDC have to offer.
"Too often we see businesspeople come in and apply for financing and they haven't made a business plan." Will explains. "If they haven't developed the breakdowns that doing a plan would have required, then we know they haven't thought through carefully what it is they want to do and how it's going to work. This makes it nearly impossible for us to analyze what it is they're trying to do and be able to say yes, this this makes sense, or no, it doesn't make sense." Businesses seeking financing without a business plan in hand are at a disadvantage right out of the gate.
A business plan should be a living document that continues to guide you and is revised as the business grows and changes. Maybe the original business idea is to focus on a storefront and less on web-based sales, but after the first year not as many people are walking through the door as you thought, but the internet is doing great. So you revise your plan to reflect current trends and this helps you focus and prioritize.
It's important for any business to establish a relationship with a local bank or credit union. Get to know the people who work there. Through this relationship, they can be the first place to go when looking for business financing. There are pros and cons of both small local banks and credit unions, and large national institutions. Sometimes large national banks don't have as good a handle on the local business environment and area. The positive side to a larger national bank is that they often have a lot more resources and products that can help you. Smaller banks have less of a lending portfolio, but they know the local economy and may have more flexibility. All the banks in the state are great resources, but you've got to find someone that you can talk to. You want to be able to pick up the phone and call someone at your bank and say, here's what's happening, here's what I need, and do you have something that can help me.
Sometimes it takes meeting with more than one place to get your financing. If you get turned down somewhere, that doesn't necessarily mean your whole idea is bad. Your business just may not be the right fit. Every bank and credit union has businesses they like to loan to, and businesses they're trying to avoid. Banks are constantly looking at what their portfolio looks like. If they currently have a concentration of certain types of businesses, they may be looking to diversify so they'll turn away the industries that they already have a lot of loans out to. A bank's lending concerns can depend on the time of year or where they are in their portfolio cycle. There are a lot of factors that go into business lending, so don't take it personally if you are turned down.
Reach out to several banks because different institutions will offer different loan structures and terms. You can also shop for the best deal for you. You may get an offer from your bank, but another bank offers you a better package. Nothing is stopping you from going back to your own bank and seeing if they will match it. Don't be afraid to ask for better terms, especially if you've received a better offer somewhere else. If you are confident in your business idea, have a solid plan to present, advocate for yourself and your business. This is where a good business plan becomes your best sales tool to sell yourself to the banks.
Maine Business Resources:
SBDC (Small Business Development Center)
SBA (Small Business Administration)
SCORE (Service Corps of Retired Executives)
Coastal Enterprises, Inc. (CEI)
New Ventures Maine-Women, Work & Community
The Southern Maine Finance Agency (SMFA) promotes sustainable economic prosperity though regional business lending. Our mission is to ...
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Noelle has been a marketing professional, and a published author and copywriter for over 20 years. Her work has been featured in both print publications and online media, where she has written on a broad range of topics. She owns Castle Media Co., assisting businesses with their marketing and digital media needs, specializing in website development, content marketing, social media, copywriting, and blogging.
