Business loans

Credit is the oil that lubricates the machinery of business. Whether it’s a loan to buy inventory or supplies, to support expansion, an equipment purchase or just the need for a short-term loan, most nursery 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 to obtain a loan.

There are enough options available to make the task a little easier. Money may be tight, but business loans are being made to those who know how to ask.

“In today’s banking climate good deals still get done, but with more equity, more collateral and much higher credit scores required of the borrower than in the past,” said Linda Feltman of the Pennsylvania State University Small-Business Development Center.

If you’re looking for financing for your business, here are some choices along with hints on how to greatly improve your chances of coming away with the money you need.

Banks
The first place most growers turn to when they need a business loan is their local bank. That’s why it’s essential to build a solid business relationship with your bank well before you need to ask them for money. Allowing your bank to become familiar with your business sets the stage for the time when you need a loan.

“There are big differences among banks. Like many other small community banks, we have always followed conservative lending practices. As a result, our default rates haven’t suffered and we’re in the same healthy position for making loans now that we were two years ago,” said Bob White, president of Abington Bank in Jenkintown, Pa.

Even after establishing a relationship, some business owners meet with frustration when the bank turns down their loan application. This is often because the owner has failed to come prepared with the information a lender needs.

To prepare for a meeting with a bank loan officer, come armed with:

• Financial statements for your existing business
• Accountant-prepared financial projections and cash flow analysis
• Marketing feasibility study for the project
• Owner’s personal financial statements and tax returns
• Information on the background and experience of owner(s)

Be careful to avoid red flags that may raise concerns.

“One of the things that would turn me off, is an applicant who has over-leveraged himself or recently financed the purchase of an expensive asset. And, of course, it’s absolutely essential that the applicant be honest and up-front with all pertinent information,” White said.

When banks say 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.
• 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 percent 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. To find certified or preferred lenders, visit the SBA web site, www.sba.gov. 
• 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, either with 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.

William J. Lynott is a freelance writer in Abington, Pa., specializing in business management, as well as personal and business finance; lynott@verizon.net.