Watch the video below or scroll down to read the recap
The Bluefield WV Economic Development Authority (BEDA) hosts workshops to fit the need of the region's business owners. This class taught by Carol Jackson with the First Microloan of West Virginia, provided information about what you can do when the bank denies a funding request for your business. She also explored alternative financing options for your business and how to find them.
Some key takeaways from the Presentation:
What Lenders Are Looking For
Character, Capacity, Capital, Collateral, and Conditions
A lender will want to know the reason for the loan, the amount, when and how long you will need funds, how the loan will be repaid, what collateral can be used, and if the business owner can provide a personal guaranty
Things That May Disqualify
A bankruptcy that hasn't been discharged at least two years
A bankruptcy for something other than health or divorce reasons
More than one bankruptcy
Non-payment of student loans (not current)
Arrearages in child support
You will be asked for...
Professionally prepared tax returns for 3 years
Financial Statements
List and value of collateral
Accounts Receivable
Accounts Payable
Business Plan
Essential in the process of obtaining financing
Includes description and vision, marketing definition, analysis and sales, products and services, and organization and management
Loan Packaging Tips
Be brief, to the point, and easy to read
Emphasize management strengths
Present attractive projections
Weave the theme, "this is how you get your money back"
Proofread what you prepare
Get help! The Small Business Administration/ Small Business Development Center in your county can help! Go to www.wvsbdc.org to learn more
About SBA Loan Guaranties
7(a) Loan Program
The SBA guarantees loans made by bank lenders to small businesses
Financing options up to $5 million
85%/75% government guarantee
Up to 25 years of repayment
Can be used to finance long and short-term needs
Applicant and banker negotiate an interest rate
Other SBA Programs
504 Loan Program
Leverage loan for fixed-rate financing for owner-occupied real estate and heavy equipment
Lender 50% of project cost; CDC up to 40% and borrower 10% (can go up to 20% depending on the type of property)
CDC loan portion up to 25 years at a fixed rate
Surety Bonds Guarantee Program
Provides Surety Bonds guarantees up to $6.5 million covering bid, performance, payment and ancillary bonds for small and emerging contractors who cannot obtain surety bonds through regular commercial channels
More info at www.sba.gov/osg
Carol showed two lists of programs on video marker 19:30.
SBA Microloans
Offered by local organizations (called intermediary lenders) in your community and approved by SBA
Microloans range from $5,000 to $50,000
Up to 6 years repayment term. Fixed interest rate
Funds may be used to purchase inventory, supplies, fixtures and furniture, equipment, and long-term W/C
Cannot be used for real estate purchases, as a line of credit, or payment of delinquent taxes (payroll, sales, etc)
Intermediary lender provides technical assistance to micro borrowers
What do I need to apply? - A Business plan, with 3 years of financial projections, credit report, and 3 years of income taxes (personal or business)
Can I qualify? - Microlenders look at a broad set of criteria including credit, collateral, strength of the business plan/idea, experience, and market area. They also look at any past bank turn-downs.
SBA Microloans in West Virginia - The First Microloan of West Virginia (www.firstmicroloanofwestvirginia.org) or www.washingtoncountypa.org
Other Routes of Financing
Friends and family - cheapest way and less effort, ensure you have their contribution on paper if they intend it to be a gift to your business just to be safe
account receivable (AR) financing (pledging or factoring) - Pledging: This IS a loan. You can use your AR's as collateral to obtain cash but you're still responsible for the collection of the AR's. You must submit the schedule of the AR's aging monthly. Advance percentage between 70-85%. Both business credit and AR quality are important. (pro: revolving, con: paperwork) Factoring: This is NOT a loan. You sell your AR's or a single invoice. Good for wholesalers, distributors, resellers, and small specialty manufacturers. Should have at least 25% profit margin built in to make it cost-effective. AR's quality is more important than business credit. (pro: fast, con: short term)
Merchant cash advances - Nonbank lender that advances cash quickly in return for a share of future sales, extracted daily from the borrower's credit card receipts. Look at sales volume. Can be approved within days. (pro: fast, con: expensive)
Seller Financing - The current business owner acts as the bank. Still a down payment, interest rate, payment terms, and owner involvement. MUST be in writing to protect all parties. (pro: based on YOU as an investment, con: seller maintains interest)
Crowd Funding and Peer to Peer - Donation Crowdfunding (rewards, charity), Investment Crowdfunding (lending P2P, royalty-based, equity) - (pro: serves as a launch pad for future products, con: depends on the model used) Peer to Peer - Are loans made directly from one person to another without the involvement of a financial institution. It IS a loan. Can be sold on a secondary market. Can be faster than traditional loans (10 days). Terms vary widely; depends on various factors. (pro: fast, con: unregulated by FDIC)
Equipment Purchasing - Equipment you're purchasing serves as collateral. Lenders can seize equipment for non-payment. Not easy to back out of, so may be stuck with outdated equipment.
Regional EDA's - New River Gorge Regional Development Authority, Wyoming County EDA, Advantage Valley, Partner Community Capital
What's a Credit Score?
Ranges from 300-850. Your score indicates your trustworthiness.
What does it mean? A lower score will give you a higher rate, a higher score will give you a lower rate when it comes to interest.
300-580 - highest
581-650 - high
651-710 - moderate
711-750 - competitive
751+ - most favorable
Tips on Credit Score
Find errors in your score and review reporting agencies yearly through www.annualcreditreport.com through TransUnion, Experian, and Equifax.
Pay your bills on time - set up automatic payments, collection agency reports last 7 years. bankruptcy remains on for 10 years.
Keep your balances below 30% of your credit limit
Making small monthly charges that you PAY OFF in full and ON TIME each month will boost credit score quickly - Having a long credit history helps, so hang on to older cards. Get a secured credit card to help build credit. Closing out unused credit cards can bring down your score.
Beware of scams - U.S. Postal Inspector, Federal Trade Communion, Better Business Bureau
Let's Get in Touch!
Carol Jackson, Loan Officer
First Microloan of West Virginia, Southern Region | cjackson@firstmicroloanofwestvirginia.org | 304-281-0488
Faith Blackwell, Administrative & Marketing Assistant Bluefield WV Economic Development Authority | fblackwell@bluewv.org
Jim Spencer, Executive Director Bluefield WV Economic Development Authority | jspencer@bluewv.org | (304) 902-2332 x 1
