Successfully Obtaining a Small Business Loan

Working with a bank to obtain a small business loan can be an easy or difficult process, depending on how prepared you are to meet with the lender and discuss your business’ situation and needs.

One of the leading causes of business failure is insufficient start-up capital. Ironically, though, lenders rarely approve loan requests for the businesses that have the highest need for a small business loan. Instead, lenders tend to prefer to offer small business loans to those businesses that have been in operation for two or more years.

According to All Business, it is estimated that 95 percent of all entrepreneurs opened their businesses with capital from their own pockets, or from money they borrowed from relatives, friends, or another person in their community. Lenders want to see business owners risk their own funds in the business venture, and often require that the business owner or owners provide a minimum of 25 percent of the capital needed to start a business, and at least that much equity in the business if the business is already in existence. Simply stated, lenders aren’t as willing to take a risk when a business owner doesn’t even risk their own money in the investment. Businesses with a history demonstrating success in paying their bills for two and a half to three years will have the easiest time obtaining a small business loan because they’ve proven their ability to meet financial obligations. You can increase sales by visiting our website www.yourbusinesscoachingclub.com.

Preparing a Small Business Loan Proposal

When preparing to apply for a small business loan, be prepared to face the facts that are against you, and use them in your favor. Persistency is necessary if you want to land a small business loan. Lenders follow certain criteria to determine if the small business loan is a wise investment for the bank. Most importantly, the bank will determine if the small business loan is likely to be repaid. As with other businesses, banks and other lenders must answer to their investors and stockholders, and unpaid loans show instability in the bank or financial institution.

Items compiled into a small business loan request include the following:

- Amount of money requested

- Likeliness of business profitability and demonstration of cash flow needed to service a small business loan

- Collateral, if any is owned by the business

- A reasonable balance between debt and equity

Know Your Banker

small-business-saturdayWhether you have a start-up small business or an established small business, the first step in obtaining financing through a small business loan is to develop a business relationship with your banker. Consider asking your bank’s manager to open a file for your business, and provide quarterly or yearly profit and loss statements. When your business is in need of financing, the bank will already have a file and will be at least somewhat familiar with your operations. When the time comes to apply for a small business loan, approach the banker with a solid business plan to inspire the lender’s confidence in your business. Provide information on business operations, marketing efforts, management ability, and financial projections for three years, as well as a cash flow projection and personal balance sheet demonstrating the worthiness of the business.

To prove worthiness for a small business loan, prepare proper documentation. Keep your credit reports as clean as possible. A lender will assume that you operate your business in the same manner that you manage your personal finances. The lower your credit rating, the slimmer your chances are of obtaining a small business loan.

When applying for a small business loan, search for a lender by first approaching the bank or banks in which you currently do business. Since you’ll need to share all of your personal and business financial information, it can be beneficial to apply with a financial institution that already has that information on file and is perhaps familiar with your profile and spending habits. If your credit rating is high, your changes are good of being approved for the small business loan.

Small Business – When Government Stacks the Deck Against You

We expect a fair degree of corruption, arrogance and drooling self-interest from our elected officials. After all, in the last 206 years, we have fallen a great distance from the days of the “virtuous republic” that existed-or was thought to exist-in that first decade after the Revolution. Yes, we expect it, but I would have more respect for the operatives, the party-men and the politicos themselves if they could be just a little intelligent about it. The current issue with the Bush Administration, Congress, the SBA and the awarding of a great deal of money earmarked for small business, is a case in point.

When Big Business Seems Small

It is illegal, a felony that comes with fines and a prison term, to try to pass your big business off as a small business to get one of the 23% of Federal contracts reserved for small businesses. Yet, it happens all the time. According to the American Small Business League, a non-partisan watchdog group, some $60 billion in Federal contracts go to major corporations each year. How it happens brings us to the question of how you decide that a business is truly small.

Counting Heads

What is a small business? How do you measure it? Is it revenue? Sales? Staff size? Any one of these could be a viable measure, but for the most part the matter is decided with staff size. Depending on the industry, you can have a maximum of 1,500 employees and still be considered a small business! (Federal Regulations Title 13, Part 121, Section 201)

These larger “small businesses,” with 1,000 to 1,500 employees, deal in oil, aerospace, rail transportation, textiles, and chemical and rubber products. Wholesalers, regardless of their products, are capped at 100; information technology value-added resellers are capped at 150 (a very recent change) while the rest are capped at either 500 or 750. In 2005 (the most recent data available), there were 5,966,069 firms in the U.S. with 500 or fewer employees and they employed 58,644,585 people out of a total employment of 116,373,003. That is 50.3% of the working population working in what could easily be described as legitimately small businesses. If you add up the firms with larger numbers of employees, you find that there are 11,546 of them and that they employ 9,475,180 people, 8.14% of the workforce.

Call me crazy, but a firm with 1,000 employees doesn’t seem to be very small to me! It may be small when compared to the giants in its industry, but it is a giant compared with the vast majority of small businesses. In 2004, there was an effort to bring the number of employees down from 500 to 100 for a business to be classified as small. In spite of a great deal of support for the measure-including U.S. Representative Lynn Woolsey (D-CA), who said: “By working to change the definition of a small business for government contracts from 500 to 100 employees, federal contracts specifically designed to ensure the success of American small business would go where they belong – to support Americans, not big companies dressed in sheep’s clothing.”-the effort was killed by the SBA itself. That, however, is only the beginning. Another has to do with how small businesses are certified.

Finding a Certified Small Business

The question of how many employees a small business can have is complicated even further when we see that the government has been rather lax in enforcing the contract award rules for small business. In fact, in 2005, some $49 billion in Federal contracts that were set aside for small business were actually awarded to the 13 largest government contractors. This lax enforcement has led to cases where the small business in question is actually a subsidiary of a much larger company, where businesses have outgrown their small business status, where big business misrepresents itself as a small business and where government procurement offices, such as with the military, simply disregard the rules and do business with who they like.

The Small Business Front

Two of the most prevalent ways that large companies can maintain a small business front are through the legal loopholes that allow a small business to retain its status throughout the life of its original contract-and bid on new business as a small business-no matter how large it grows and even after it is bought out by a large company.

In either case, what the company in question is doing is, in fact, legal. Their actions are also limited by the fact that the loophole is based on the length of the small business’ initial contract. For example, if a small business wins a 10-year contract to provide computer hardware, it maintains its small business status for the full 10 years of the contract regardless of how large it grows or if some huge conglomerate buys it. This has been an issue for some time. Consider the following:

seo-for-small-business

According to a 2006 report on the U.S. Government Accountability Office: Commerce Information Technology Solutions (COMMITS) Next Generation Governmentwide Acquisition Contract, “We found that many of the 55 COMMITS NexGen contractors have grown significantly or have been acquired by larger businesses and may no longer meet small business size standards. We also found that a significant portion of the task orders intended for the smallest contractors were issued to larger, incumbent contractors.”

Incumbent contractors tend to get the lion’s share of the government’s business. A 2004 SBA Office of Advocacy: Eagle Eye Publishers’ Report said that: “Of the top 1,000 small business contractors in FY 2002, Eagle Eye Publishers’ analysis found 44 parent companies it identified as either large firms or ‘other’. Contracts to these two groups taken together had a total value of $2 billion.” The report continued, saying that: “The Department of Defense and the General Services Administration accounted for 79 percent of the contract awards found to have gone to large businesses.” One of the conclusions drawn from the report was: “As a result of this lack of transparency, many awards that should be reserved for small firms go to large firms unchallenged.”

Disregarding the Rules

Rules can be broken either directly, by a willful disregard on the part of those the rules were intended to regulate, such as a company that purposefully misidentifies itself as a small business in order to get a contract; or they can be broken indirectly by a lack of oversight and enforcement that creates an atmosphere in which the rules can be ignored. One of the problems sited against the SBA is oversight. “SBA did not review the majority of reported bundled contracts that we identified, though procuring activities must provide, and SBA must review proposed bundled acquisitions. As a result, 192 contracts identified by procuring agencies as bundled were awarded without SBA’s review. If all of these are actually bundled contracts, a minimum of $384 million would be potentially lost to eligible small businesses, based on minimum dollar reporting requirements of $2 million.” (SBA Office of Inspector General: Audit of the Contract Bundling Process, May 2005) And consider this from the SBA Office of Inspector General: Audit of Monitoring Compliance with 8(a) Business Development Contract Performance, March 2006:

“Though SBA delegated 8(a) BD contract execution authority to 26 procuring agencies, SBA did not ensure that procuring agencies monitored whether companies complied with 8(a) BD regulations when completing 8(a) BD contracts . . . SBA has ultimate responsibility for ensuring that companies comply with 8(a) BD regulations”

The SBA is the final oversight authority for these contract awards and yet through their lack of enforcement efforts, it is easy for large businesses to slip through. Why is this? There are two likely reasons. The first is that the Bush Administration, when it came into office, cut funding for the SBA. At the end of the Clinton Administration, the budget for the SBA was about $1.1 billion. By 2006 it was down to $456.5 million. Funding has increased since the 2006 low; for 2009, that number has increased to $657 million, mostly due to funding for disaster relief loans; but the agency has nowhere near the budget it used to have. Generally speaking, if you cut funds to an agency, certain things start to slip and that is not a message that the SBA, or the Bush Administration for that matter, want going public.