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started welcome to financing your business today's panelist is uh my good friend herb lawrence and herb is a lender relations specialist with the arkansas district office of the sba and i don't know if he's going to say much about himself but uh herb used to be one of us on the spdc side he's been a consultant and a director he's also been a loan officer for a bank uh he knows every aspect of managing your business all right welcome herb take it away all right thank you very much timothy and good morning to everyone uh as timothy said my name is herb lawrence i work for the u.s small business administration my main job here is as a lender relations specialist and that basically means that i spend the bulk of my time working with banks credit unions economic development non-profit lenders to help them understand and to use the different sba loan products i don't usually spend a lot of time talking to borrowers themselves that's why we've got great folks like the sbtdc but i will go through some basics now understand today's webinar is really a basic about uh financing your business so it's not just about uh sba programs it includes everything that a small business or an entrepreneur needs to be thinking about before they look for funding assistance of some type to either launch or grow their business and so we'll be covering highlights to that uh you know specific questions that you may have as timothy said please feel free to put them in the chat some timothy will try to answer or i will try at the end of the presentation i think he also will be able at the end to open it up for q a that might be there so with that let's go ahead and get into it before we start talking about the funding in though i do want to put a plug in for the arkansas small business and technology development center the center is a uh is here in arkansas they have seven locations around the state and they provide free confidential assistance to use small businesses or use startups and it runs a gamut uh consulting is one of their major areas they will work one-on-one with you for whatever you may need it may be help uh in a business plan it may be assistance in doing financial analysis of your existing operations or developing projections uh they spend a lot of time uh also working with a small business that's looking to put together a loan package whether that package is strictly for a lender or it's going to require some government guarantee program as well they do a great job and they are a wonderful resource to help you go through all of those that assistance in addition to the consulting which is probably their their main uh area they can do a lot of research for you uh or with you i should say uh so uh your lender maybe has said hey you need a business plan okay what's a business plan what all has to go into it what do i need to know uh they have a library of sample business plans uh and while they will and they have uh assistance that they can make in putting your plan together now it's important to understand they will not write your business plan for you but they will help you through the product process uh they can edit they can troubleshoot play devil's advocate uh and especially in the business plan portion where you're needing to put financial information together and that's really important for those of you that are startups because well you don't have any existing financial data so they can use projections and help you put something together that your lenders will need to see in order to make those decisions probably as far as the research is concerned some of the best information they've got for you is their market research they have spent untold amount of money to have proprietary access to market research that if you were to go out and get it on the internet could cost you thousands of dollars to acquire and yet if you are a client of the sbtdc they can pull that market research data for you at no charge and better than just getting you the research information those consultants will sit down with you and go and here's what it means here's what you need to know uh as you go through that so by all means if you are not leveraging the asb tdc consultants get a hold of them after this webinar not only to get that free consulting assistance but for help in getting that market research data because you're going to find that is going to mean an awful lot to any lender who is looking at trying to put together a possible funding option for you and then finally education just like what we're doing right now uh the sbtdc puts on numerous uh seminars and webinars of course with the virus uh most everything they have been doing has been uh virtual like this uh although hopefully with people getting their shots and with the governor relaxing some of his uh mandates as far as uh on-site uh maybe in the next couple months we will be able to start doing some real live webin seminars again in the near future stay tuned but those that education programs that you get and most of all all that is at no charge again covers a wide variety of topics not just funding maybe it has to do with quickbooks or possibly market research or how to do social media marketing you know they can provide you with detailed educational assistance on just about anything you need if you go to their website uh that's just asbtdc.org one of the drop-downs is on uh training and you can see all of the training programs that are being offered by the asbtdc that you can sign up for uh over a quarterly basis and i think you'll find there is a tremendous amount of assistance that they can provide for you so by all means you need to if you are not working directly with one of the sbtdc consultants get with them and find out how to get signed up as a client and again they have locations in seven different universities around the state so they cover wherever you are so if you are in jonesborough for example the arkansas state university's small business technology development center uh would be your resource so you can find the locations there and the contacts that you will need so please take advantage of what they're providing to you and the reason i say that is part of their funding for the sbtdc comes from fund grants provided by us at the small business administration and matching assistance through their universities so what that means is when i said it it's free actually you've already paid your federal and state taxes last year you've already paid for that assistance you just haven't taken advantage of it so by all means reach out and see what they can do to help you be more successful so for today's program uh the agenda that we're going to go through and i am not going to talk solely about sba programs i'm going to talk about all of the possible funding options that are out there i'm also going to talk about some of the things that you need to think about uh before you actually start to look at applying for a loan uh whether it is strictly through your commercial lender uh or through a commercial lender leveraging some some uh federal government guarantee program uh because it's yeah you've got to remember your audience is going to be a commercial lender and one thing you have to really be concerned about is if you are a startup now if you're an existing business and you've been in operation for three or four years and you're ready to expand uh you've got income statements you've got financial data to help support your request but if you're a startup if you're just getting ready to launch this business and you know it's going to take some funding to do it you can't do it through out of your back pocket you're going to have to talk to a lender and one thing i know is having been in commercial lending for a good while is as a startup business you're one of the scariest animals out there to me because one you've got no history as far as how you've operated the business you've got no historical financial data to show me that in fact yes you could uh cash flow that loan uh and so i'm always concerned as a commercial lender they're always concerned they want to make loans now understand they're that's what they're there for but they want to make good loans and so they need to be comfortable especially for you startups that they're making a good decision and that goes back again to one of the things that makes working with the asb tdc consultants so beneficial is most all the lenders in arkansas they know the asb tdc and if you come to them with a loan package and you used the asb tdc to help you with your business plan your market research help putting that loan package together you've suddenly got a tremendous amount of credibility as far as that loan officer is concerned uh so again a good reason why you want to work with them so let's talk about where money can come from let's talk about what lenders are looking for in trying to decide whether to make that loan to you some basics on getting ready for that meeting uh you know one of the worst things you can do if i would visit with a small business or an entrepreneur that contacted me when i was at the bank uh and we had an appointment you came in we talked about how the razorbacks were doing how bad the crappie fishing was in lake conway uh and then we get down to the basics well and so one of my questions would be well how much are you looking for let me tell you if the next thing out of your mouth is i don't know how much can you loan me we're pretty much done uh because it's obvious you haven't done some homework i want to hear uh you know thank you for asking i'm looking for as an example 150 000 to get my business up and running and of that 150 000 i'm going to use x amount for construction x amount for equipment x amount for inventory x amount for working capital and here's how i plan to pay it back now you've got a lot more credibility with me so let's talk about how to get you ready for that interview uh and that'll include some of the basics on you're asking and then some things you'll want to avoid uh when you're out especially going through the internet looking for people promising to help you fund your business so next slide uh so where does capital come from where does that funding come from and you know if you look at this list especially for you startups you'll notice that business loans with or without some type of government guarantee are actually at the bottom of the list you need to look into your own resources what do you have available that you can access to inject into the business whether it's from your savings account uh your iras whatever it may be because i understand if you are a startup business or you are acquiring an existing business most lenders are going to require some type of equity injection on your part they're not going to make a hundred percent loan uh so you need a hundred and fifty thousand dollars uh to get that business up and running as an example how much can you bring to the table of your own money that you're willing to risk i can tell you that depending on the type of business on the type of collateral that you may have available the amount that a lender may need could range anywhere from 20 percent of project costs to 40 or 50 even again depending on the collateral however i will put a plug in here if your lender is looking at using the small business administration's guarantee loan program we allow the lenders to only require a maximum of 10 percent of the project costs for startup and buyouts if you're an existing business and you have a strong financial history you may not have to put any equity in but look at your say look at your own personal resources what have you got to put into the deal if you don't have much of your own uh you know one thing we found is that small businesses will talk to what we call fff friends family and fools uh you know while you're irrele you know relatives may have some money that they're willing to help you invest uh it can be an awkward new uh an awkward thanksgiving day meal uh if you borrowed some money from aunt tilly and haven't talked about paying her back uh so while it is there uh you know it's an option you may need to talk to them be aware you know there's the risks involved another is that a lot of people to get their business up and running will use their credit cards be careful with this because that low introductory apr that can suddenly turn into a 27 interest rate uh that can really put you behind the the eight ball uh but there are businesses that will leverage uh their personal credit cards uh to help them with that funding that is an option you've got to look at what is going to be right for you a lot of times too to get that equity if you own your own home or residential real estate and you have equity in it that may be an option to help inject some money into that overall project cost as well and then of course we've got folks who will use their ira uh you know and that is a possibility now be careful obviously again uh because you've got to uh you know you're planning on retiring on that so if something goes wrong you may lose it and now you can't retire but again that is an option you have to think through it very carefully i know when i was uh with the asb tdc i worked for asu arkansas state university my retirement program actually allowed me to borrow money from myself out of my retirement account and i you know so i was born for myself i could inject it into my business and then i paid myself back uh so i mean that and that worked well so check if you're you might want to talk to your administrators of your iras and see if that's an option you might think about and then finally the other one is regular commercial business loans with or without some type of government guarantee uh so let's and and to be honest for you startups uh while banks credit unions uh are there uh to make loans they're there to make good loans and again like i said if you're a startup uh you know you're at a challenge because you really don't have the historical data to help make that loan officer comfortable that one you understand your business you understand your market you understand your competition and that you have realistically estimated how you're going to pay me back out of the proceeds of the loan so again another plug talk to that sptdc consultant they can help you with those whether it's strictly a commercial loan from a bank credit union or whether it's a commercial loan from a bank or credit union leveraging some government guaranteed program next slide you know when we talk about those traditional lenders uh you know understand again they want to make good loans a loan officer does not go far in the banking business by making loans that go belly up uh this quick way to not have a job very long so they're looking very carefully uh at any application that you submit to them and while you're excited about it you just know that you're gonna make a million dollars in the first year those lenders have to take a very conservative view and they have to be as sure as possible that one you have collateral to help support it whether it's business collateral or personal and that you actually have looked at the fun of the income potential and that you have a reasonable ability to pay that loan bank and those banks are going to ask you questions they want to know prove to me show me on your projections uh how you're going to do that show me what your expenses are going to be or how you anticipate them to be and that you're going to be able to to help us with that be willing to talk to them about collateral that you have and how to help secure that you've the biggest challenge that you're going to have in talking to a commercial lender is to make them comfortable that you know what you're doing you know your plan and that they have a good reason to feel that you are going to have the ability to service that debt uh understand too that while i would love to make a loan to somebody uh especially a startup many times in the bank i was restricted because of regulations not only that the bank had but that the bank had imposed on them by their regulators so uh as an example uh when it comes to excuse me collateral um they might have a requirement that's asked what is the uh debt to e uity uh ratio so of the assets you're going to purchase at a liquidated rate what's the probable value if i should have to liquidate your assets to help pay off some of that loan and they have regulations that say what that ratio must be they have requirements that may be in the bank only or may be regulated that talk about equity injection so understand that there it's not just the lender but the lender is having to follow certain guidelines that are imposed upon him or her in making those decisions that also can be a great reason why you might want to leverage say the sba's guarantee loan program if a lender uses our program many of those regulations they have to follow they can mitigate uh so maybe they have a requirement uh say uh that says if we do the loan in-house we need a 30 equity injection to your total project cost if they did it in house however if they're doing it leveraging the sba and our guarantee program they could deal with a ten percent equity injection a bank has many time has uh restrictions on the maturity of a loan if a bank looks at doing a loan in-house as a rule of thumb if you're going to buy equipment with that they're going to look at a maturity on the loan of a maximum of probably five years if it's real estate they don't like to go out much more than 15. if it's inventory or working capital if you can get three years maturity you're doing pretty good however if they leverage a guarantee program uh in our case with the sba we allow the lender to actually take your loan out uh seven years for inventory and working excuse me uh yeah inventory and working capital you can go 10 years or the irs is useful life of the equipment for fixed assets and you can actually take it out 25 years on real estate construction or acquiring of an existing business so when you look at your monthly debt service by leveraging a uh guarantee it becomes much smaller as far as what you have to write a check to the bank for every month which means more money in your pocket to help run your business and again because the bank is leveraging a guarantee program they're allowed to bypass that five years for equipment and carry it out 10 years which will be better for everybody so there are different there are reasons why you need to become familiar with what the lender needs and also to be familiar with some of the uh different options that your guarantors can provide that will help a bank over or credit union overcome their internal requirements to help make that loan next slide so that's where government guaranteed lenders come in i of course work for the u.s small business administration and we spend a lot of our time working with commercial lenders to teach them how to leverage our programs we'll give you a little more information on the different programs in the upcoming slide and also not only us but our good friends at the u.s department of agriculture have a business and industry outreach guarantee program uh that could be leveraged as well so uh you know there are several different government guaranteed agencies that are there to help you overcome issues that your commercial lender may have in trying to do it in-house next slide so what are our programs this is our list of normal sba programs so i'm not talking about any of our covid19 related programs here our standard run-of-the-mill lending programs that we do day in and day out and the biggest one our flagship is our seven day guarantee loan program that can go up to five million dollars it is a guarantee it is not a loan from the sba it is a loan from a bar a lender where the government has said we will provide a guarantee to you mr or mrs linder in the amount of anywhere from 50 of the value up to a maximum of 90 percent so what that means is if a bank makes a loan uh using a 7a guarantee loan program and something happens and the business fails so they have to liquidate the assets and there's still a balanced due on that loan uh if they have a seven day guarantee they can then apply after they've liquidated the collateral to the government and we will pay them uh depending on the type of program anywhere from 50 to up to 90 percent of what's still outstanding that significantly mitigates the risk the bank or credit union faces and makes them much more interested in doing the deal now as a subpart of our 7a program we have something called sba express of all of our any bank or credit union in arkansas can do a 7a guarantee some are more active than others uh you know it's their call our more active sba 7a lenders uh have proven that they have the ability to understand the program and so we they apply to us and we allow them to become what are called delegated lenders by that it means they don't have to apply to the sba requesting that we provide a guarantee they merely go in and they tell us hey we're y'all are guaranteeing this loan thanks a lot now typically the express loan program uh in normal times is a maximum of three hundred and fifty thousand dollars uh it can meet almo any other any normal operating expenses uh so whether it's working capital inventory uh equipment real estate you know they can do that as long as it's uh normally 350 000 or less and in return the bank only gets a 50 guarantee but they're allowed to use their own documentation at the present time because of the pandemic under our cares act any existing sba express lender their maximum loan is now 1 million dollars and we can provide them with a guarantee if the loan is 350 000 or less we'll give them a 75 percent guarantee if it's over that 350 up to that maximum of a million we give them their 50 however at the present time uh and additionally on the express what makes it work very nicely is that it can be a term loan or it can be a revolving line of credit so that you can use it as a true revolver and you can do it in combination when i was doing express loans at my bank i might do one loan to my borrower for term so maybe he needed equipment so i'd make a term loan for a hundred and fifty thousand dollars for the equipment and then that limp borrower also could use some working capital on a revolving basis and so i might make a 200 000 revolving line of credit for that borrower uh and it gave me that ability to do it in-house so a great program uh taught if and while not all lenders are express lenders most of our larger lenders are uh and if you contact the arkansas district office i can certainly tell you without any order of preference who our express lenders are in the state and if they happen to be one of your banks then they might be a resource you'd want to to access in addition to as part of the express if you are a qualified veteran we have a veterans advantage program it's part of the express program and the only real difference is that we do not charge a borrower fee for a veteran however at the moment that's a moot point because for any of our 7a loan programs whether it's a standard 7a or an express we have waived all borrower guarantee fees regardless of whether you're a veteran or not so another great reason to get involved the next one is our 504 loan program that is strictly for fixed assets does not include inventory or working capital uh it's basically if you've got to do construction or if you need heavy fixed equipment uh this program is one where you have you a bank makes or credit union makes 50 of the loan they get a first on 100 of the collateral no guarantee involved but they are in a very strong position one of our certified development companies and here in arkansas we have three one is called arkansas or six bridges corporation out of arkansas capital one is called rural missouri inc the other is capital cdc out of texas they are going to come in and can do up to 40 of the project subordinated to the commercial lender for his or her you know loan and they will give you the borrower a loan of up to 25 years at a fixed interest rate not a variable and i think at the present time that interest rate from the certified development company is about three little around three percent not a bad deal uh the borrower regardless does put in at least 10 percent equity into the project cost i've covered it very quickly but if you want information about the 504 loan program uh i will give you a link to our website that goes into a lot more detail and the different cdc's that are involved and then finally our micro loan program you know while r7a and 504 can go up to 5 million dollars one thing we found out is a lot of our borrowers they don't need that they don't even need a million they don't even need a half million i've got we've had borrowers that say i need twenty thousand dollars i need thirty thousand dollars uh and so we have in arkansas two micro lenders they are non-profit economic development lenders so they're not banks and they have our program where they can make loans of up to fifty thousand dollars for a small business to overcome issues they may have a lot of times you know maybe it's because it is so small a bank doesn't want to look at it or maybe you've had some credit issues in the past there's been something that may be preventing that bank from wanting being able to do that deal and again as long as it's 50 000 or less one of our two micro lenders is a great option uh to work with we have two here in arkansas one is called forge f-o-r-g-e uh and the other is called communities unlimited and again toward the end of the program if you're interested in more information about our micro lenders or want to contact one of them i can provide you with uh the contact information for those for any of our sba loan programs however a i would highly recommend if you're wanting to get more information about them that you go to our website and that's just www dot b a dot g o v and click on funding options it will give you more detailed information about our 7a loan program our express program our 504 loan program our micro loans and currently it will also give you information about our paycheck protection program under the covid as well as our economic injury disaster loans so i strongly encourage you to go take a look at that i would also encourage you to talk to the commercial excuse me to your uh consultant at the asb tdc they are very familiar with all of our programs and as you work with them they are in a good position to say you know what this really should probably be a micro loan or this may be best as a 504 and they can help put that application information together for you so let's go to the next slide uh and i know you've heard a lot of myths about government guarantee lending myth number one it's easy to get a small business grant grant or number two grants are available for any type of business now let's talk about the g word uh typically in normal times the sba does not have a grant program it's free money we don't do that we have spent all of ours has been through loan programs now i will say do go to our website and look at the coveted 19 options because we do have some opportunities for our paycheck protection program which while it is a loan from a bank it can be forgivable by the bar to the borrower which in essence makes it a grant we also have under our eidl economic development economic and injury development program we had advances that were also grants that went up to ten thousand dollars uh those are no longer available on a total basis uh but there are limited amounts and again you can go to our website to see it and then also if you are a our shuttered venue program uh that can make some grants available uh if you meet specific requirements so you were a museum you were a sports complex you were some entity that had large mass gatherings that you could no longer do because well kovitz said no there are opportunities there and again i don't have time to go through those here i just strongly recommend go to our website look at our covet 19 link and it gives you details about those programs so best opportunity but for our standards our normal programs we do not have grants whether you are a woman or or a minority or an underserved i understand but we don't have special grants that work strictly for y'all unfortunately next slide here's what i can tell you uh recipients it says recipients are typically non-profit organizations that's actually for our usual seminar our normal loan program 7a 504 micro that's not true they are for profit entities they want to have or else they want a profit under the covid 19 options yes there are opportunities for certain non-profits to apply for ppp or eidl loans and again you need to check on that but our normal 7a 504 micro are aimed primarily at for-profit entities uh there are some grants that we have nothing to do with though that may be for some industry specific programs uh so you if you are in the hospitality in industry you should really reach out to your local uh associations to find out if there's anything available uh there are instances where a community or a city or a county may have some types of grant programs to spur small business growth those are always going to be specific we do not try to maintain information about those so if you are for example in pocahontas arkansas reach out to your local chamber and see what they may have available for you uh they are high where there are grants they are highly competitive and again the asb tdc is not a grant maker they can advise you on grants that may be available and also for except for certain of our covet 19 funding options we do not have grants either next line a couple places so you may want to reach out one is the arkansas science and technology authority they do have some grants that are actually matching so it's not a hundred percent but they in certain cases if you for every dollar you inject into certain areas especially if it's related they may be able to help provide a dollar match in the funding so please go to the links that are shown at the bottom to get more information about those and how you might apply and what the eligibility may be also the research and development tax credit program this allows credits against your taxpayer state income tax for certain qualified research expenditures doesn't necessarily give you money but it helps defray some of your taxes and again these are all on this sheet organizations that do not belong to the sba so i'm just saying if you think you might have something that's technology related or if you want to see how you might be able to use that state income tax deferments go to the links below to get more information unfortunately i cannot provide you with details on that because they are not sba related next slide uh as far as some of the other grants and we just kind of go through them let's say that one is our sbir sttr program small business innovative research or small business technology transfer this is a program that can provide grants to meet your specific innovative needs that an agency and the government may be interested in so uh you want to you wanted to develop a teen vaccine but you need some money to do that research if there's a government agency that's looking for outside folks to do that research maybe an opportunity so there is a link there that can help you see what is available in sbir sttr also the asb tdc does have a consultant that helps work strictly with sbir sttr related options and you can go to their website and see who that is and how to make contact with her the foundation center again these are not sba programs they are just some where you might find some opportunities for grants outside uh and there is an online database that you have a link to there at foundationcenter.org spend a little time go into it see what the options are see what kind of criteria exists for that possible grant uh it may be there to help and then again to uh not sba but other federal agencies do have some grant programs i can tell you usda has some grant programs if you want to search for those there's a link that can help you do that research or talk to your sbtdc consultants they can help as well and in the state of arkansas arkansas rehabilitation services in certain cases can provide some funding to assist a applicant who is involved in the arkansas rehab services that wants to start a business to get some fun ing uh in a grant not a hundred percent that might help get that launch so uh those are a number of different examples i've walked through very quickly it's incumbent on you to if you think there are some grants out there do your research here are links you can use to try and track those next slide so what are some of the alternatives that exist out there we do have uh addition to our regular traditional commercial lenders whether it's a bank or a credit union there are some others that you may want to talk to arkansas capital corporation group i had mentioned them they are a certified development company and do 504 loans but they also can do 7a guaranteed loans so they are a resource uh that if you would uh that may be held helpful if your bank is one that does not do sba and there who you have a banking relationship with you may want to reach out to arkansas capital corporation group and see what they have another one are our two anothers are our two micro lenders communities unlimited and forge f-o-r-g-e now both of them are micro lenders doing sba loans of up to 50 000 however both of them have other non-sba pots of money that can go in excess of 50 000 that you may want to reach out to uh again they're not sba loans that the forge is doing or communities unlimited but there are other pots that they've got so it's well worth it for you to reach out and talk to them there are some uh and i there's just several that are listed uh that are uh online economic development lenders such as lift fund and beaufly that you may want to reach out and talk to as well i always like to work with brick and mortar where i can but in certain instances working with legitimate online lenders may be an option and by all means if you're a member of a credit union talk to your credit union we can do 7a guarantees through our credit unions and in fact we have several that are very active uh in doing sba lending and then of course they've got some online lending platforms like smart biz and lending club these are not sba programs now but they are designed to help small businesses trying to access funding that may be having challenges with their traditional lenders uh just google smart biz or lending club see what they've got available uh and it could be it's an option again talk to your consultants about these as well a couple other things that we've got that i wanted to bring up there is a organization called federal home loan bank of dallas they are the wholesalers to banks for money uh you know a bank doesn't keep its money and the vault goes down and blows with dust off to to make you a loan banks actually have to buy their money and so a wholesaler is a federal home loan bank of dallas and to encourage banks to use them they have some programs uh that can be beneficial to a small business so they can have loans of uh up to a hundred thousand dollars or fifty percent of a member's loan uh that they can help fund uh they can offer that small business no payments or interest uh on small business funds for up to a year or three percent interest only on payments of up to two six percent on those with principal amounts uh that go up to three uh if you want to learn now again federal home loan bank of dallas is not an sba agency but if you'd like to learn more about these programs you've got the link to them i'd strongly encourage you to reach out and see what's available and i would talk to my consultant and then one of our uh 504 certified development companies is called rmi rural missouri inc they're headquartered in jefferson count city missouri but they do loans in not only missouri but also all through arkansas and they have a unique grant program that can fund up to ten thousand dollars uh you must be 51 woman owned minority owned or veteran owned you must be in a rural area and you have to go to rmi at that link to apply now i understand this is not an sba related grants it's something that rmi is doing to help get funding into specific uh underserved markets so if you'd like to know more about the rmi program go to the link that's provided there and they'd be happy to tell you about that uh i'm not going to spend a whole lot of time on this when we're running out of money all right money time but understand that some of the other options as well as you know commercial bank you maybe is finding an investor uh who might be willing to partner with you uh to help uh in that funding what we call angel investors or even other non you know private investors who might have some out there they are there they're not easy to find however if you google for example angel investors arkansas you'll find several different links on uh investors that might be there uh you know you hear about venture capital uh it is there one thing that we have found is that when you're looking at a venture capital opportunity they're looking at large dollar amounts they're not looking at oh i need twenty thousand dollars to start my uh nail salon uh they're looking at a half million or greater and honestly they would like to see existing businesses that need help going to a next level that you are already successful in what you're currently doing but to expand to grow you're going to need outside funding and so again uh there are several venture capital organizations in the state i do not i cannot recommend them but if you google venture capital arkansas or talk to your consultants they can provide that and then finally uh there you know there is some web-based uh internet-based uh options called crowdfunding and these are kind of donations uh whether it's indigo kickstarter crowdfunder hub rocket hub or crota or crowdrise these are not sba programs but they are some options that might be there to help get some of that funding in uh you know in some cases maybe using them to help with that uh equity portion and then talking to a lender and again do your research on these uh crowdfunding options to see if they're right for your particular business so let's talk about what does that lender want when you're going into his or her office and trying to get a loan uh they yeah and again i'm doing this from my experience in commercial ending really really really when i talk to you i need to see that you as the owner of the business know all about your business your market your market area your expenses your revenues and i need to know who your competition is and that you have taken a objective look at really the structuring how that's set up you've got to prove to me that you're going to have the ability or if it's an existing business you do have the ability to run that well to develop your markets to deal with the competition and to meet the needs of specific market niches and again you've got to be able to prove to me that you're going to dig up uh you're going to roll up your sleeves and you're going to make this thing work uh our lenders will help where they can but it's subsequently on you and working with your sbtdc consultants i gotta see that you're financially sound i must know as a lender in all probability that you're going to be able to prepay this loan as an existing business that means i want to see your business tax returns for the last three years if you're a startup business i gotta see realistic projections that i can believe i can't take things you just yank out of your ear and say oh this looks good which goes again to why you want to leverage your sptdc consultants they have access to data that can help you put together a realistic set of projections that any lender can put their hat on uh i when i would see projections by the sbtdc you just had a hundred percent more credibility with me uh than if i didn't know how you developed those i need to know that you're willing to put up collateral not just business assets that you're going to acquire but if you have personal collateral that you're willing to invest those as well you're asking me to put my money as the bank into it what are you willing to risk and again that you're willing to invest some of your own money and maybe friends family fools uh or others to help make that work next slide so and we how are we doing on timing uh timothy you're uh you're doing fine keep it up okay okay so what is it that these crazy bankers want well any lender had you know they spend time learning something at banking school called the five c's but when you come in with a loan proposal whether you're existing or you're a startup they are looking at your proposal and they are comparing it to these five basic criteria they want to look at you and your character they want to look at the cash flow historical or projected they want to know about collateral that you've got they want to know how much money you're putting in and they want to look at know about the overall conditions of the market and we'll look at these a little bit more detail so i want to know uh your personal reputation that you have are able to show a historical willingness to meet your debt obligations personal or business that's often reflected through your credit score so know your credit score before you walk in to talk to a lender because they will pull that credit score if they want to move forward with you and many banks have a line in the sand when it comes to credit score that says and this is just an example uh maybe that bank says you know if your credit score is 640 or above we'll look at your deal if it's 639 or below we're not going to touch it so know your credit score and again each bank or credit union may have a different line of sand so you need to check with them on it but by all means when you walk in at least pull and see what your credit score looks like now i will tell you this if the bank or credit union uses the sba we want them to pull a credit score and provide us with that information but we do not have a magic line in the sand because we understand there are times that uh good people have problems uh and so maybe you had as an example a bankruptcy seven years ago uh that had a pull on your credit uh but you have since worked out of that bankruptcy you do not owe anybody anything but it's caused your credit score to be lower than what the bank might want uh we will overlook that when the bank sends that request to us we also would like to see you know the bank also likes to see references people in the industry that can vouch for your expertise and then finally a management experience i want to know that if you're going to start an underwater basket weaving business you've got some experience in the underwater basket weaving industry or at least have experience in managing a small business of a similar type and can prove to me that you have what it takes to walk through to make that deal work credit score fico it's really and i'm not going to spend a lot of time on fico this really does a good job of explaining how your score is computed just basically it looks at a combination of things it provides different weights to these different areas but first of all it obviously wants to know how much you know 30 of the fico score is going to be based on how much money you have outstanding in debt credit card debt sears debt you know gma's whatever it may be uh we want to see and then it also uh has uh you know it credit on the payment history do you and that if you lose that that makes up 35 do you have a history of meeting your debt obligations on time or ahead or are you consistently running behind in making your payments that's going to play a big part on how that score is calculated also looking at the length of your credit history so how long have you had that debt and have you been servicing it on a regular basis what kind of debt do you have is it credit card debt that's basically uh not collateralized or is it some kind of uh bank debt that is collateralized that plays a big part uh and of course how much many new credits uh loans are you taking out the higher the score the lenders looks at the less risk to them so again why do you need to know your credit score because this is what the bank is looking for and this helps you understand how they're calculating that score next slide if your credit score is low here's the ways you can get help you can get a free credit report at that link if you see errors in your credit report and you know that's wrong hey i did not take this out but it's on there you can dispute those errors with the whoever has that debt and you can make those corrections a couple things to do is just make sure you're always paying on time uh or before and do more than just interest only apply it to the principal and try to do as much as you can and again questions about credit scoring how to overcome issues talk to your sbtdc consultants they have resources that can help you repair capacity what do we mean by that basically is well is your business gonna yeah can your business pay its bills including service this loan they for existing businesses that's why we want to see if you've been in business three years we want to see your last three years historical cash flow excuse me and dcr dc or dcr just means credit debt to credit rate or debt to cash ratio sorry debt to cash ratio uh you give me your last three years tax returns you know and i can adjust it uh so i can add back depreciation you may have done or something else and get an idea of what your actual cash flow is and look at amount that you're wanting to borrow and the terms you're wanting to borrow it on and i can go historically can they meet the debt servicing on this loan or not well as an existing business again i want to see it from historicals if you are a startup we got to look at those projections and that's what makes them so important and even if you're an existing business maybe you want to expand your market and so while you have been getting net income and you have been having a good uh a reasonable uh cash flow in your existing market maybe what you need to do is expand into untried areas and it's going to cause you to have a cash flow that may not apply for just your historicals you can apply uh projections to that as well so more about projections and help determining your cash flow talk to your consultants uh as i'll tell you unders you know i looked very hard when i was a lender uh cash flow was king more than collateral it was a reasonable expectation for that you could repay this debt uh as far as collateral just be understand a bank while they are cash flow lenders they are usually cash flow lenders who like collateral what have you got to pledge to the bank or the credit union should the loan go bad and that can be the business assets you're going to acquire but don't be surprised if you need to also the bank also wants you to pledge personal assets that you may have uh that's just the reality you want alone what are you willing to risk and so look at what collateral that you were going you may have uh you could also have it something that maybe um you know a guarantor will pledge as well most lenders require personal guarantees so i am going to not only need to see that herb lawrence underwater basket weaving incorporated is guaranteeing this loan but i'm going to want to see that herb lawrence the business owner is personally guaranteeing the loan as well in the event something goes wrong and the deal goes bad capital contribution again we've already mentioned this uh how much equity can you put into the end of the deal as a startup business or a buyout of an existing business uh sba would require the bought lender to make sure you the borrower can inject up to 10 percent a bank or credit union looking to do the deal in house without us uh typical 20 to 25 of the project costs and depending on the business assets you may acquire they may need more because they need to know that you're putting your risk into this opportunity as well and then when they look at condition this is where your business plan comes into play as you're telling me how much you need to borrow or borrow based on the maturity for the different uses of proceeds because remember i said a bank doing a deal in-house working capital inventory three years maybe equipment five years real estate no more than 15 normally but with an sba guarantee or a usda guarantee uh the bank can override that a d they can actually take that amount in terms out to be up to 10 years for inventory and working capital excuse me seven years inventory and working capital ten years are the life value life of the asset for equipment and 25 years for real estate construction etc what that means for you is instead of paying a larger monthly debt service to that bank you're paying a smaller monthly debt service which means you have more money to put into running at your business maybe hiring more employees buying more inventory doing more advertising and if you have an sba loan as long as the maturity of the loan is under 15 years we they we do not allow the bank to do any prepayment penalty so while it may have a 14 year term you can pay it off early the bank cannot penalize you anything over 14 so 15 or more we do allow the bank a small prepayment penalty if you pay it off in the first year they can charge a three percent payment prepayment penalty second year i'm sorry five percent in year one three percent in year two one percent in three year year three and if you're going if you pay it off by year four or beyond zero uh so there are advantages that you can use on that but understand your terms uh tell me exactly how you plan to use that money don't just tell me i need 150 000 i need to know how much is going to go for inventory working capital equipment uh maybe refinance uh or equipment because that's going to dictate the terms and the maturity of the loan as well as what the collateral value will be and then i'm also looking at the overall health of the community how reasonable is your expectation i was in batesville for many years and we had a great little town not far from us called oil trough arkansas great little town big farming community but if you came in and said you wanted to put in a a starbucks in ultra off arkansas i may have questions about your understanding the conditions of that particular market uh so uh make sure you understand will your community actually support what you're wanting to do all right so what do you need to do to get this credit readiness ready first think like and the lender is really not your competition but think about him that way if it helps what is it the lender needs to see those five c's can you address those be prepared when you walk in have a loan proposal a business plan be ready to defend it be able to tell me why you came up with the projections that you did and how you base those assumptions uh because i need to know that they're based in reality tell a great story and be honest if you did have a bankruptcy seven years ago don't try to gloss over it let us know tell us what's going on and what issues you may have because they want to work with you but they don't like it when they find out they had to discover because you didn't share it with them certain things that might make it difficult all right so figured out let's talk about what do you need to do get that piece of paper out get with your sptd consultant tell me how much is it going to take to get that the business open get the doors open fully functional and keep you in operation for the first few critical months with cash flow how much are you going to be able to inject how are you going to use it again equipment real estate working capital what are you going to do what kind of financing is there are you going to inject equity if so how much and how you're going to get it uh maybe you're looking at a combination you're looking at a bank note for some x amount of the debt and maybe getting a personal note for some of the other let the banker know all the debt that you're going to have even if it's a forgivable from your great aunt tilly tell us how much you can pay monthly based on either your historical financial data or on your projections and make sure i understand the collateral that you're pledging now i understand when you have collateral for your business you know it's worth every penny to you because that's how you're going to make your living a banker has to look at it from the standpoint of if the loan goes bad if i have to take that collateral and sell it how much can i reasonably get that piece of equipment that you spent seventy five thousand dollars for so you could do your business a lender has to go i get that piece of equipment i gotta sell it fast i'm not gonna get a hundred percent maybe if i'm lucky i'll get fifty percent inventory maybe twenty percent it just depends on the time so they're looking at what's called liquidated collateral value because they're not going to hang on to that collateral forever to try to get the amount they've got to sell it fast so that's an issue collateral is another big reason why lenders may want to use excuse me and yourself that may want to look at the sba we tell a lender when they're applying to get an sba guaranteed loan take all collateral that is reasonably available including if need be any personal collateral however we will never never decline a sba guaranteed loan due solely to collateral so if you just don't have it you've got a great business plan your lender wants to do it anyway it it that would not be a reason for sba to tell the lender now we can't do it you understand that you know we're not going to make 100 no collateralized loan for our normal programs uh we want some as much collateral as we can get reasonably but we'll never turn it down only for years and of course that how much is your contribution what's your equity going in and here are the things you want to bring into that meeting personal information about yourself that business plan with your projections a resume that shows your expertise uh you know be ready to talk about your personal credit report uh understand your bar your lender if he or she decides they want to do it they're going to pull it too but know what that credit score is for yourself if you are an existing business you should probably also have a business credit report maybe it's at a den and bread street or some other that shows how it works bring your income tax returns as a existing business i want to see your business tax returns if you are a startup uh sba does not require 1040s but your bank may and so be prepared to provide that if necessary uh and then again financial statements so uh maybe you have you know i want to see uh income statements and balance sheets on your business no more than 90 days old from the date you apply so if your tax returns are dated uh april 15th and here it is december 30th well it's over 90 days i need you to run uh whether it's through quickbooks or through your accountant i need you to run uh a in-house income statement balance sheet cash flow projections be willing to bring your bank statements to support it list that collateral that's available and then any legal documents that you may have so if you are required to have some kind of license to do that business show me that you've got it uh maybe it's a maybe you're a sub chapter s or an llc bring that documentation with you if you have it if you're going to lease uh the facilities instead of own it bring me a copy of the lease agreement even if it's tentative even if the lease is subject to approval of the loan i want to see what the landlord has said he's going to do because that's going to have a drive and if you have any existing contracts that may be available bring those as well these are the things to come ready to talk to your lender about and then to end this thing out uh there's unfair lending practices out there there is absolutely no credit you are probably getting bombarded by people on the internet in your email telling you that they can make you alone be very careful if you google sba lenders if you've got the sba.gov website that's legitimate that's us but there are unscrupulous lenders out there who may actually say they are sbalending.com or sbalending.org and make you think they are part of the sba and they are not and then you get end up with a very nasty surprise uh as you work with them be aware of anything about high interest rates or fees uh one thing if you do you know uh if you're working the commercial lender they're gonna charge a reasonable interest rate if they are using an sba guarantee we do put a maximum on how much interest they may charge we don't dictate their interest rates but we tell them they may charge no more than 2.75 percent over the prime lending rate as an example so it does kind of set a cap for how much they may charge online heck you may get a 27 apr wow uh 50 or some payday lender that's charging it daily uh so just be very careful if you see something that doesn't look right uh online talk to your sbtdc consultants and they can help you with that and understand nobody out there can make you a guarantee that you're going to get a loan until you've got something in writing from that lender with all the terms and conditions that may be there so be very careful with these folks with that i think we've pretty much come to the end of our presentation we i've been hearing the chat go off uh i strongly encourage you to talk to your local lenders whoever you bank with at the moment give with them tell them about what you're wanting to do even if you're not ready to provide them with a business plan at the moment one reason that may help is some banks may have policies that they don't do certain types of loans there was a bank they're not there anymore uh that i used to work with in the as an sbtdc the center director and they had a policy that just said we do not do restaurants period don't care express or excuse me you know guarantees don't care we're not going to touch a a restaurant so if you bank with that bank it'd be a nice thing to know ahead of time if you're going to open a restaurant so talk to that local lender find out if there's any prohibitions that that bank has involved that might have an impact be careful with any non-traditional funding sources out there research them very very carefully don't just take their word for it and then again understand your ability to obtain credit build and protect your personal credit history be careful and look closely at your credit his uh your credit reports challenge anything that you believe is incorrect and make sure you keep that and for goodness sakes don't ask don't feel scared to ask for help our consultants at the sbtdc at the arkansas women's business center at score are there to help provide you with free confidential assistance in your loan packaging to include anything that you may need so there we are at the end phew uh covered a lot of material i understand that and i did not uh talk specifics about uh the covet 19 program uh the asb tdc it does ongoing workshops on that i don't know they probably have a schedule coming very quickly i work on those also the arkansas district office u.s small business administration we do weekly ppp e-i-d-l borrower webinars that you can sign up for to be able to access and when timothy sends the information out to everybody it will include an email for our district office that you can go to and ask to be put on our arkansas district office sva email distribution list and you will get immediate updates whenever we're doing webinars whether it's on ppp shuttered venues e-i-d-l you name it you'll find out all about it you can register at no cost all right i'm done timothy that thing was ringing and rolling we got questions i'm assuming actually uh you've kept everybody involved so thank you for doing such a good job i think you answered everybody uh normally we have this for an hour and a half i think and when we rescheduled it we put in 11 instead of 11 30 so if anybody had to leave early i'm okay feel free to leave cause we're gonna send everybody the video office also has a twitter account uh but uh they're a great source for you to use to get any kind of answers to any small business related question you may have that's why we're here to help answer your questions all right thanks again herb and again we don't have any questions so i believe you're adjourned so just a reminder as herb said at the very beginning talking about asb tdc we're a partnership with the sba uh they're from that program here in the state through the university of arkansas little rocks college of business health and human services we partnered with six other universities currently with seven physical offices we're expanding to 10 so everybody in the state is well within an hour drive of physical assistance once we can start doing that the time being we're all virtual