Need funding for your business? Here's where to start looking
by Joy JordanWhat is the most important and necessary item to have when starting or running a business? Money, of course.
Many entrepreneurs wonder how to get it, and how to keep it once they have it. Cape Business invited three experts – Anne Rice Hunt of the Small Business Administration, James Hanlon, Sovereign Bank’s vice president for government lending, and Kathey Hickey Fulham, an Osterville-based CPA – to offer their recommendations for “Raising and Managing All the Capital You Need” at its Cape Business Connect small company development conference last fall.
Entering the world of commercial lending
Most financial issues are daunting for the average small businessperson, and none more so than the act of asking for money from a lending institution. Hanlon emphasized that the key here is to prepare properly and organize all your financial information.
The initial step, and one that a surprising number of people fail to finalize, he said, is the completion of the application forms. Doing that correctly demonstrates to a banker that you have the capacity to follow through and attention to detail and that you are concerned with the end result.
Preparing the forms will force you to gather valuable financial data, ranging from your business plan to financial statements, as well as budget projections and your own resume.
The business plan, in particular, will force you to examine the specifics of running your business: Where the money is coming from (income) and where it is going (expenses). “Think about these issues, because the bank thinks about them,” said Hanlon.
When you meet with a potential lender, keep in mind that you are interviewing the banker as much as he or she is interviewing you, said Hanlon. You must feel comfortable and you must be honest. Ask the banker about his or her background, industry specialty, and who their ideal customer is. Finding a good match will help both you and the lender achieve your goals.
Good planning comes into play during the approval process as well. It can take a fair amount of time for an application to be approved. You should start the process before you actually will need the funding.
Hanlon said bankers are generally alarmed when a customer comes in looking for a loan and states that the funds are needed immediately. It demonstrates lack of planning and budget projections, neither of which are plusses.
Guidance through government guarantees
There are many times when help from the Small Business Administration may be advisable because a business doesn’t qualify for a standard commercial bank loan.
Hunt, who works at the SBA’s Massachusetts District Office, said, “The SBA doesn’t loan any money itself. It provides guarantees to the banks that loan the money.”
The SBA offers loans up to $2 million dollars, generally guaranteeing up to 85 percent of the funding. There is no 100 percent financing under SBA plans – all require the borrower to have something invested themselves in order to share the risk.
To be eligible for an SBA loan guarantee, businesses/business owners must meet a number of criteria. Hunt said that the guidelines qualify most businesses on the Cape.
The SBA also offers different plans for different needs – some are more appropriate for funding working capital, some better suited to paying for fixed assets. Your lender and SBA specialist can help you find the best plan for your needs.
In practical terms, Hunt said, the lender requirements for an SBA-guaranteed loan are much the same as for a traditional commercial loan, in terms of needed documentation and information.
“You will be most successful at obtaining financing,” Hunt said, “when you can justify your numbers through a business plan.” A business plan is clearly a document of critical importance to any new or established business.
How to manage the money
Once you have obtained financing, whether through a traditional commercial loan or an SBA-guaranteed loan, it then becomes a matter of making that money grow profits.
Kathey Hickey Fulham said the biggest concern for small businesses is the cash gap. This is the number of days between cash outflow and income – essentially the health of your cash flow.
Cash flow is, Fulham said, “the lifeblood of your business.” It can mean the difference between staying in business and closing down.
An important distinction must be made between cash flow and profitability, emphasized Fulham. Cash flow is the pattern of receipts and expenditures, both actual and projected. “It’s what pays the bills,” said Fulham.
Profitability, on the other hand, measures the results of the entire operation over a given time. It can help you determine if your business is successful and effective, whereas your cash flow can indicate the financial health of your organization.
There are a number of specific steps you can take to help reduce the cash gap in your business, Fulham said, and they can vary according to industry. These include managing inventory, billing promptly, using grace periods and improving payment terms.
Your accountant can help guide you through these situations and help you find the best arrangement for your industry and business size. As each of these financial experts noted, the importance of a qualified team of advisers to guide you cannot be underestimated – that way, they can do what they do best, and you can lead your organization to success.
Joy Jordan is managing editor of Cape Business magazine. She has worked in the technology and publishing industries and was chief copy editor for Cape Cod Community Newspapers. 
