Borrowing for Small Businesses Presented by Truist

Watch the video below or scroll down to read the recap

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In this workshop, Truist representatives walked attendees through best practices of small business borrowing and topics such as understanding your financing options and the borrowing process.

Before You Jump In

You'll want to reference or download the Truist Borrowing for Small Businesses Guidebook before you review this class recap. Truist representatives walked attendees through the guidebook and how it can help you prepare for small business borrowing: https://bit.ly/borrowingguidebook

Be sure to take our workshop survey here: https://bit.ly/borrowingforsmallbiz

Workshop Recap

Why Businesses Need Funds - with examples

• Grow business – drive sales (Open a new location, Launch a new product, Increase digital marketing)

• Increase production or service capabilities (Automate/add equipment, Upgrade software/technology, Train additional staff, Replace a worn-out delivery van)

• Boost profits (Shift sales from in-person to e-commerce, Take advantage of volume purchase discounts to lower costs, Increase staff productivity)

• Manage cash engaged in the business (Consolidate debt, Build inventory for busy seasons, Handle seasonal cash requirements, Secure funds for one-time/unplanned expenses)

Note: On page 3 of your guidebook, note some actions your business could take beside the outcomes.

Where to Find Funding

• Business Cash Reserves: PROS - Inexpensive, low-risk source of funds, Flexibility to use profits and retain control of the business. CONS - Accumulating reserves can take time, and Limits cash availability for emergencies or other needs.

• Equity Investment by Owner: PROS - Primary source for startup/early-stage businesses, Quick access to funds. CONS - Requires additional cash from owner personal funds, and May create personal financial stress.

• Equity Investment from external Source: PROS - No repayment schedule, Potential industry experience and connections from investors. CONS - Owners may give up control and future profits, Investors expect a higher return.

• Borrowing: PROS - Often lowest cost form of outside financing, Owners retain control, equity, and profits. CONS - May not be available for new business or those without sufficient equity, Business/personal assets at risk if not repaid.

Note: Follow along on page 4 of your guidebook to determine which type is best for your business.

How to Select the Right Type of Financing

Refer to the table on page 5 of your guidebook to learn about Business Credit Cards, Business Loans, and Business line of credit and which would be best for your business.

Other Types of Financing

• Business lease – allows the business to use the property owned by the lessor. May have an option for the user to purchase the property. Often used for commercial real estate, office equipment, and business vehicles.

• Construction loan – a type of real estate loan where the balance increases as a project is completed until a point where the loan is paid off or converted into a commercial mortgage.

• Small Business Administration (SBA) guaranteed loan – a type of financing offered by lenders where the SBA guarantees a portion of the loan. Often a way for borrowers to obtain longer terms or flexible funding if they do not meet conventional borrower qualifications.

Other Funding Sources

To read more on these options, check out page 6 of your guidebook.

• Family and Friends

• Equity investors

• CDFI (Community Development Funding Institution)

• Online Lenders

• Peer-to-peer (e.g. Funding Circle, CircleUp)

• Crowdfunding (e.g. Kickstarter, Fundable)

Note: Try to brainstorm what funding sources or lending products your business may need in the future. You can use the bottom of page 6 in your guidebook for notes.

What Lenders Look For

• Character - Proves you pay your obligations on time and in full

• Capacity - Demonstrates your business’s ability to pay off the debt at your current sales level

• Capital - Shows that you have enough equity/down payment and can withstand a downturn

• Conditions - Confirms that your business’s risks, the industry environment, and current macroeconomic conditions favor repayment of the loan

• Collateral - Provides existing assets or assets to be purchased with the loan that can be used for repayment if needed

Note: Find more on how these are evaluated and what you can do about them on page 7 of your guidebook.

The Borrowing Process

1. Identification - deciding you need a loan

2. Application - an official request for credit

3. Underwriting - making a credit decision

4. Closing - signing and funding

5. Processing - appraisals and final requirements

6. Decision - approve and decline

7. Repayment

Creating a Business Borrowing Profile

A business borrowing profile is a snapshot of your business and your funding needs. Completing the profile ensures you have a clear understanding of your business situation, reasons for borrowing, and plans for repayment. While most lenders will not ask for this level of detail as part of a loan application, preparing the profile will help you articulate your request clearly. Refer to pages 9 and 10 in your guidebook to fill out the business borrowing profile.

Next Steps after a Financing Decision

1. Build a record of making payments on time. Update your cash flow planning and monthly payment reminders to include loan payment(s) and other regular obligations or put all your payments on automatic draft.

2. Address any business issues or deficits that could keep you from securing credit.

3. Build your track record of sales and profit growth to support future borrowing.

4. Continue to build the equity value of your business—a strong balance sheet and capital structure position you for future financing.

Summary of Key Points

• Borrowing requests should drive meaningful business outcomes.

• Borrowing, along with equity and cash reserves, are the primary sources of business funding.

• The best type of financing for your business (credit card, loan, or line of credit) depends on your situation and what you want to accomplish.

• Lenders focus on five considerations when assessing a loan request: character, capacity, capital, conditions, and collateral.

• Understanding the borrowing process and setting the right expectations can lead to a smoother experience and a more positive outcome.

• Putting your borrowing profile in writing can help you and a lender understand the fundamentals of your business and your borrowing needs.

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Let's Get in Touch!

Jim Spencer, Executive Director Bluefield WV Economic Development Authority | jspencer@bluewv.org | (304) 902-2332 x 2405

Savannah Carabin, Business Operations + Marketing Manager Bluefield WV Economic Development Authority | scarabin@bluewv.org | (304) 902-2332 x 2408

Faith Blackwell, Administrative + Marketing Assistant Bluefield WV Economic Development Authority | fblackwell@bluewv.org | (304) 902-2332