Not So Easy Money
Still, lenders burned by bad loans in the 1980s aren't taking any chances. "We're not interested in taking the financial risk," says Thomas L. Wilson, chairman, president and CEO of Southern Commerce Bank in Tampa.
To give themselves an edge, business owners should put together a detailed proposal before talking with a lender. "Small-business owners ought to take a good internal look at themselves as a business and have a good business plan," advises Steven Hickman, director of small-business banking at Barnett Banks, adding: "It's not necessary to walk into the bank with a bound, 500-page thesis. It needs to have some meat, not just flash."
Include the following:
Who are you? Business name and address; number of years in operation; number of employees and current business assets. Name and social security number of each principal and details of the business' legal ownership structure. Backgrounds, education, experience, skills and accomplishments of principals and top managers.
Why the loan? Will the loan be used for working capital, a new piece of equipment, real estate? Why is it needed?
How much? Request an exact amount needed to achieve a goal.
Beyond this, business owners should present information on the company's product, customers and competition. You'll need company financial statements or tax returns for the past three years as well as personal financial statements of the owners and a list of collateral that can be pledged to secure the loan.
"Having your financials up to date makes a tremendous difference," says St. Petersburg businesswoman Carla K. Barnes, who recently received a $110,000, five-year loan with an interest rate of 9.25% from First Union National Bank of Florida.
When Barnes Machine Co., founded almost 50 years ago by her father, decided to buy a $145,000 metal-punching machine, Carla Barnes talked to another local bank and an out-of-state finance company. In the end, she settled on First Union, where her company had a good experience refinancing a loan in the early 1990s and now does its business banking. "We didn't feel like we were put through the mill," says Barnes about First Union. But she concedes, "My father was used to dealing on a handshake. It doesn't work that way anymore."
Barnes got her loan in just a few days, but Jon D. Harkins, manager of the business lending unit at First Union, says only 50% to 60% of loan applications are approved.
Peter McDougal, vice president and manager of small-business lending at SunTrust Bank in Miami, points to two key problems for borrowers: lack of a clean personal credit history and little equity in the business.
An alternative is a U.S. Small Business Administration (SBA) loan. The SBA rarely makes direct loans; instead it guarantees a portion of loans made by banks and other lenders. Although most banks process SBA loans, two or three certified lenders in each area of Florida (about 30 statewide) specialize in these government-guaranteed loans.
The most popular SBA loan program is called "LowDoc," or low documentation. Loans cannot exceed $100,000 and can be made only to businesses with 100 or fewer employees and no more than $5 million in average annual sales for the preceding three years. SBA requires only a one-page loan application (which can be downloaded from the Small Business Administration's World Wide Web site on the Internet - http://www.sbaonline.sba.gov). The SBA acts on the loan within two to three days and guarantees repayment of up to 80% of the amount.
An advantage to the SBA program: often a longer maturity or payback period. Former policeman Emmanuel Brillant got one from SunTrust in Miami for his year-old Brillant Cleaning and Laundry in Liberty City. "I think big. I said $100 grand," says Brillant. "They couldn't do that. They did $37 grand instead." Although Brillant didn't get all the money he wanted, he did get a seven-year payback -- about six more than a conventional loan.
In October, a new law reduced the federal guarantee for SBA loans, to 75% from 85% for loans over $100,000 and to 80% from 90% for amounts up to $100,000. Fees charged to borrowers increased to as much as 3.875% for larger loans. The changes likely will make banks more cautious in lending and add hundreds or thousands of dollars to borrowers' costs.
For small-business borrowers, the key is to convince lenders that the business will generate enough cash flow to pay back the loan. "You can't borrow yourself out of debt," says Don Montgomery, president of Montgomery Electric & Air Conditioning Inc. in St. Petersburg. "I think a lot of people give banks a bad rap because they don't have their ducks in a row."
Searching For Angels
Entrepreneurs who believe passionately in their businesses (and isn't that all of them?) are forever wondering why financiers don't always share their vision.
Consider David and Barbara Dubats. Five years ago, the Holmes Beach couple began researching and designing a device to help patients who don't have the strength to use a regular walker.
They scraped together $60,000 of their own money to start Second Step USA and fund product development. About a year ago, the Dubats began looking for $50,000 to begin manufacturing and distribution. No such luck. "When we approach venture capitalists, they say they won't even consider funding anything this small," says David, adding hopefully, "I think a private investor is more of a possibility."
Dubats is probably right. For Florida entrepreneurs looking for less than $1 million or for any amount of start-up money, the venture capital likely will come from wealthy "angels," not venture capital firms.
Is venture capital right for your business?
Venture capital investors won't invest a dime unless you put a hefty chunk of your own money at risk.
A venture capital investor becomes an equity partner who has a say in how the business is managed and where it's headed.
How do you find investors?
Network, network, network. Go where wealthy individuals congregate -- to country clubs, resorts, charity events and local business functions.
Become active with venture capital clubs. Most parts of the state have at least one group that regularly hosts gatherings of entrepreneurs and investors.
One of the state's largest venture capital events, the Florida Venture Capital Conference, will be held Jan. 31 and Feb. 1 at the Biltmore Hotel in Coral Gables. (The registration fee is $249 before Jan. 17 and $299 after). Venture capitalists, investment bankers, financial intermediaries and entrepreneurs meet to mingle and hear presentations by more than 20 entrepreneurial companies. The event is sponsored by a South Florida venture club, the Florida Venture Forum at Florida International University, and Ernst & Young LLP. For information, call 305/446-5060.
Find a matchmaker. Some lawyers, accountants and consultants specialize in matching investors with entrepreneurs. A good place to start your search is a well-known accounting firm. Check references carefully before doing business; anyone can claim to be a matchmaker.