Start Up Handbook series part 2 Capital Access Primer and Definitions
This is part two on Capital Access of a ten part series for start ups and new entrepreneurs.
Part one entitled Making it Legal addressed Establishing a Legal Entity - Understanding the Advantages and Disadvantages of the various types of Legal Entities
Part two will provides insights on:
- Financial Services Needed - Addressing the issues and the options
- Do You want to Access Capital? What you need to Know
- Your Personal Credit Score - What you need to know and what you can do about it.
- Preparing an Income Statement for Your Business
- Do You Need to Raise Capital?
- How to Access Capital for Your Growing Business
- Check your credit score. Address the issues. Use a 680 credit score as your goal
Major credit issues that adversely affect your credit standing are:
- Short sales
- Loan modifications
Other Factors that Impact Your Credit:
- Past Delinquencies -35%
- Debt and Ratios - 30%
- Average Age of File -15%
- Mix of Credit Types - 10%
- Inquiries - 10%
And Then What?
- Improve your elevator pitch
- Establish a relationship with a business banker before you need to access capital
- Attend networking events, interview lenders. Open a business account
- Prepare a strategic plan that includes an action plan (A traditional business plan is not required)
- Create a team that meets periodically to review your progress and problems.
The team would include
- Owners and senior management
- Your attorney
- Your accountant
- Your marketing specialist
- A mentor or a coach and possibly an advisory board
How Bankers Look at Borrowers -
Being Bankable -How to Establish a Relationship with a Banker
Whether you are applying to a bank for a line of home equity credit, a line of credit for business working capital, a commercial short-term loan, an equipment loan, real estate financing, or some other type of commercial or consumer loan, many of the same basic lending principles apply.
The most fundamental characteristics a prospective lender will want to examine are:
- Credit History of the Borrower
- Cash Flow History and Projections for the Business
- Collateral that is Available to Secure the Loan
- Character of the Borrower
- Loan Documentation
When reviewing your loan application, lenders look for good credit, a feasible business plan, adequate owner equity and sufficient collateral. Perhaps most important, they look for management expertise and commitment. What real world experience do you and your key partners or employees have in managing this type of business?
Here is what you’ll need for a bank loan application:
- Cover letter of introduction
- Summary of financial needs (Source and Use of Funds)
- Business financial statements (Not less than 2 years)
- Business tax returns (Not less than 2 years)
- Projected cash flow statement (Not less than 12 months)
- Collateral (both business and personal)
- Personal tax returns (2 years)
- Personal financial statements
The lender will also ask:
- Are there any legal claims, liens or judgments against you or your business?
- Are any assets pledged?
- Are your tax returns and payments up to date?
- Do you have any life insurance? If so, what is the face value or the cash value?
- What are your monthly household income and expenses?
TIP: Your credit score is crucial to your startup’s financial success. Since your new business does not yet have a track record, banks will consider your personal credit score in making lending decisions or opening business accounts. Vendors, suppliers and potential partners will also assess your personal credit score before extending credit or doing business with you.
Next- THE SIX C’S OF CREDIT - SOMETIMES REFERRED TO AS THE THREE C'S OF CREDIT)
About the author
Marjorie Weber has been educating entrepreneurs and guiding them in their search for capital for the past 16 years: combining business training programs with one-on-one mentoring. Marj is currently a financial advisor for Florida SBDC at FIU. She was Chair of SCORE Miami Dade from 2010 to 2014. She also serves as an advisor to the Goldman Sachs 10,000 Small Business Program and the SBA Emerging Leaders Program and provides training for Veterans seeking an entrepreneurial path upon retirement from the service. She has facilitated workshops under the auspices of Miami Bayside Foundation, Little Haiti Cultural Center and .local banks. She commenced her career as a real estate investment banker in New York and Miami..She uses these long term relationships to assist her clients in accessing capital. She knows both the process and the people and has assisted in providing financing for hundreds of businesses in Miami Dade.