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Thinking About a Business Loan? (Part 2 of 2)

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Photo: © iStockphoto/Kutay Tanir

William J. (Bill) Lynott |

Where Will You Find the Money in Today’s Tight Economy?

CHICAGO — Credit is the oil that lubricates the machinery of business. Whether it’s a loan to buy supplies, to support expansion, a capital purchase, or just the need for a short-term loan to meet payroll or other operating expenses, most coin-op laundry owners need to depend on credit at some point. Unfortunately, the upheaval in today’s economy has resulted in a credit crunch that seems to have made it tougher than ever for business owners to swing a loan.

Still, for those in the know, there are enough options available to make the task a little easier. Money may be tight, but business loans are being made every day to those who know how to ask.

What Happens When the Bank Says No?

When your best efforts fall on deaf ears at your local banks, all is not lost. Here are some alternate sources of business financing that may meet your needs:

State Government Programs — Most states have loan programs designed to provide small-business financing. Some of these programs provide loans at lower-than-market interest rates, provided the business will create jobs in the state.

Some states have collaborated with local banks in lending arrangements designed to attract, retain and expand businesses. Typical of these is a partnership between the State of Ohio and Huntington Bank. Known as the Ohio Huntington Business Loan Program, it has provided more than 2,000 small and medium-size Ohio businesses with loans totaling $465 million.

For information on small-business financing programs in your state, contact the office of your state representative or state senator.

Federal Government Programs — The federal government also has loan programs available to assist small-business owners. The most popular of these is the Small Business Administration’s guaranteed loan program that guarantees as much as 80% of the loan principal. This program gives your bank an incentive to lend to a borrower who does not otherwise meet the bank’s lending guidelines.

Among other SBA loan programs available to small-business owners is the 504 loan. Established in 1980, the 504 Loan Program provides long-term, fixed-rate financing for major fixed assets, such as real estate, facilities construction or expansion, or other fixed-asset needs.

If you decide to seek an SBA loan, your best bet is to work through a certified or preferred lender. The SBA’s guaranteed loan process is rather complex, so you want a lender who has experience working with them. To find certified or preferred lenders, visit the SBA website or call your local SBA office for guidance.

The SBA has local and regional offices in every state. You’ll find their phone number in the federal government section of your local phone directory. For detailed information on all SBA programs, log on to sba.gov.

Small-Business Investment Companies (SBICs) — SBICs are private investment firms licensed by the SBA to provide investment financing and long-term loans to small businesses. Some SBICs make only equity loans, others provide debt loans, and some provide both. As a rule, SBICs will require the same level of collateral and credit ratings as banks.

For information on how to contact an SBIC, check with your local SBA office or log on to sba.gov/inv.

Local Economic Development Organizations — Your local Chamber of Commerce or other business group may have some revolving loan funds available to businesses specific to your community. Generally, these funds come from local resources and have specific guidelines for their use.

Begin by contacting the director of your local Chamber of Commerce to see what help might be available for the specific purpose you have in mind.

Angel Investors — When conventional financing options seem out of reach, many business owners have had success seeking out individuals or commercial lenders willing to invest in a business expansion, with either debt financing or by taking an equity position in the business. When you find an “angel” investor, you’ll probably find that this option is more flexible than a bank loan or government program.

If you don’t know anyone with the economic firepower to fund your loan, don’t give up. There is an entire industry of professional investors looking for opportunities to invest in growing businesses. For more information on how to match up with an investor who might be interested in your situation, log on to entrepreneur.com/article/52742.

Keep in mind, though, that unless you’re willing to give up an equity position in your business, working with a professional investor is not for you.

When All Else Fails

Depending on the size and economic health of your business, the only source of expansion money available to you may be what you can dig up on your own. Be advised, however, that each of these money sources carries special risks.

Friends and Family Members — If you have a friend or family member able to help finance your growth, you may find this to be the easiest type of loan to obtain.

But use caution. Most financial experts agree that mixing business and personal relationships can lead to destructive problems in both your business and personal life. If you do take a loan from a friend or family member, make sure that all details are carefully spelled out in a written contract.

Credit Card Financing — If your needs are modest, you may have credit cards with lines of credit substantial enough to fund all or part of your financing needs. While it can be tempting to simply charge everything, this is arguably the riskiest and least desirable of all financing methods. The burdensome interest rates charged by credit card issuers these days can become impossible to meet if your business hits even a minor bump in the road. The result could be a severely damaged credit rating — or even the loss of your business.

When you need to raise money for your business, say most experts, a thorough and detailed business plan is the key to the safest and most desirable types of financing. While other than conventional sources of money may seem the easiest to find, they are seldom the wisest choice.

About the author

William J. (Bill) Lynott

Freelance Writer

William J. (Bill) Lynott is a freelance writer whose work appears regularly in leading trade publications and newspapers, as well as consumer magazines including Reader’s Digest and Family Circle. You can reach Lynott at blynott@comcast.net.

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