Jacqui Gal

Don’t get held up at the bank

Finding alternative financiers

Image: www.freeimages.co.uk

The greatest hurdle for any budding small business is securing finance. Sure, banks are willing to lend to thriving companies, but what about the small guys?

“Financing is certainly one of the biggest challenges [small businesses] have to overcome,” says Daniel Fisher, who is the director of financial services at the Brooklyn Business Solutions Centre.

“Some people have challenges with their credit record or a lack of general financial stability, with no assets or income. Other times, the amount of money they want may be too small; it’s below what a bank would lend as a business loan.”

However, the most common setback is a problem with credit.
“Either they have not established any credit or they have derogatory accounts on their credit record,” says Fisher.

For Michael Weltz, who opened his restaurant, Park East Grill, in 2003, finding the right investors was tough. “Almost every bank we approached required some sort of collateral to put up for the loan,” he remembers.

Although Weltz eventually used his house as collateral with a small bank loan, he also approached other lenders for funds. “I tried people who knew me rather than approaching strangers; people who knew my ability, my background and my experience.

“I put together business plans and forecasts and ran through different scenarios. I tried to be a realist. I predicted what their concerns might be and addressed them before they had a chance to express them.”

According to Fisher, Weltz’s approach is the right one. Besides the banks and credit unions, there are a number of other lending sources to tap. “Every lender has their own lending criteria and one of our challenges is to match borrowers with lenders who fit their profile,” explains Fisher.

“Businesses often look to family and friends, or even venture capitalists and private investors, although the latter two are not common for start-ups and generally involve larger amounts of money.”

“There are also non-profit organizations called micro-lenders, who offer smaller business loans of $50,000 or less.”

Some microlenders have specific target populations for their loans: women, minorities or low-income individuals. Nevertheless, the basic criterion of their loan approvals is the same, says Fisher: “They want to see that there’s enough money made in the business to pay the loan.”

Micro for the macro

Businesses looking for small loans, can consider borrowing from a microlender, if they wish to borrow less than minimum amounts set by banks. Usually this amounts to $50,000 or less.
More than just a good solution for businesses, microlenders boost the economy and contribute to social justice causes.
Daniel Fisher, director of financial services at the Brooklyn Business Solutions Centre, explains: “Microlenders are organizations that often lend to non-profits with a social mission.
It’s not really a profitable portion of the market; very few of the microlending organizations cover 100 percent of their costs from income generated from their loan activity. They generally receive some support from foundations or government sources.

“For that portion of the market that needs just a small amount but for some reason doesn’t qualify from a bank it’s a great solution.”
Another crucial element in achieving a loan is presenting a solid business plan to the lender.

“Sometimes entrepreneurs are denied credit because they’re not familiar with the process or not prepared,” says Fisher.
For Weltz, who was only 24 when he started planning for his restaurant, a solid and realistic business outline was especially important.

“Trying to start a business and deal with banks and purveyors and salesman who are double your age, while you’re the one making the decisions can be awkward.”

Being equipped to present them a foolproof plan was essential.
At the Brooklyn Business Solutions Centre, Fisher and his staff help people with business plans, and explain what kind of foresight and projection lenders will expect to see.