Posts

Five Ins and Outs of How to Apply for a Small Business Loan

/in /by

How to Get a Small Business Loan in Five Easy Steps

Congratulations! You’re getting your small business off the ground and into a bright horizon. With the resources of a small business loan, you’ll have the adequate funding to maintain a prosperous business. Whether you own a pet franchise, independent business, or are delving into a new start-up—having the financial backing helps.

This article helps summarize the process. There is a lot of paperwork involved in loan application process whether through a bank, credit union, or the SBA. Organization is crucial. You will need to clearly state why your business needs a loan and determine the amount you will need to take out.

Be prepared to answer the following questions:

  • Why are you applying for this loan?
  • How will the loan proceeds be used?
  • What assets need to be purchased, and who are your suppliers?
  • What other business debt do you have, and who are your creditors?
  • Who are the members of your management team?
  • Questions relevant to your personal background.

Organize all Required Documents

Before investing precious time and resources into the application process, first, procure all the documents you will need. This will expedite the whole process.

To start, you will need to check your personal credit and your business’s credit. An SBA 7a loan, for example, is the most common loan for small businesses. For an SBA 7a, you will need a 680+ FICO score. You will need to request a credit report from all three major credit reporting agencies like Equifax, TransUnion, or Experian.

You will also need to develop your business plan. A thoroughly prepared business plan must include a complete set of projected financial statements, including profit and loss, cash flow, and a balance sheet. You will also need to submit personal and business income tax returns from the three previous years.

Some lenders also require business owners to submit legal documents depending on the nature of your business. Be prepared to submit business licenses and registrations, article of incorporation, copies of third party contracts, franchise agreements, and commercial leases.

Review Your Lending Options

For small business loans, there are a variety of lending institutions to peruse through for financing. Do some comparison shopping. Different lenders have different criteria points, interest rates, and financing.

You can choose to apply at a national commercial bank or smaller regional bank. Often small businesses have an easier time getting approved by smaller regional commercial banks. Credit unions are also an option, but you will need to be a member. If this is the case, speak with a loan officer at your local credit union about assessing your business for a small business loan.

There are also state and local economic development agencies that specialize in advancing entrepreneurialism. Non-profit organizations can provide lower interest rates than large banks, or are more willing to aid with small business owners who do not qualify for traditional commercial loans.

Prepare and Polish Your Business Plan

Once you have all the documentation, preparing your business plan will be more streamlined. A business plan is a living document that projects three to five years ahead—configuring how the business will grow revenues via your intended plan of action.

You will need to the following:

  • Projected financial statements
  • Profit and Loss statements
  • Cash flow
  • Balance sheet

From these documents develop your business plan. Use the following checklist to make sure you have included every provisional detail.

Executive Summary

This section describes your business. It should include a mission statement, founding, growth highlights, products and/or services, glimpse of financial information, and a summation of future plans for the next 5 years.

Start-ups and new businesses should treat an executive summary like a pitch. Show you have done the market research,  include your own experience, market gaps, and your vision.

Company Description

The company description expounds on the executive summary. It should include details on your business’s marketplace, an explanation of your products and/or services, analysis of consumers, and competitive advantages your business possesses.

Market Analysis

This segment segues from your company description. A market analysis provides more detail into your market knowledge. This is where you will present research findings applicable to your business.

Include:

  • Industry description
  • Target Market and Evaluation
  • Size of Market
  • Market Share Gains
  • Competitive Analysis
  • Regulatory Restrictions

Be thorough. To avoid penetrating questions during your presentation to lenders, answer them all here with a prepared course of action.

Organization & Management

What does your team look like? This section outlines your company’s organization structure, details of ownership, profiles your management team, and qualifications of a board of directors.

Service & Product Line

The emphasis in this description should be on the benefits of your potential consumers and retained customers. Focus on what your business provides that will target customers. Details about product’s life cycle, intellectual property, and all research and development should be included.

Marketing & Sales

How are you planning on driving sales and retaining customers? A comprehensive marketing strategy blueprints growth strategies, distribution, and communication to customers.

Funding Request

This includes your needs for your present request, and for the future. This section shows your intention with a loan and strategic plans for the future.

Whatever you plan on doing with your small business loan—list that here.

Financial Projections

With clear objectives, describe where you believe the financial state of your company will be going forward. Include data from the last five years. If you have not been in business this long, provide prospective financial data.

Visit Local SCORE & SBDC Offices for Guidance

Speaking with experienced executives and business experts will help ease and answer any unknowns you might have before presenting to a lending organization on your personal financing situation. Local Small Business Development Centers, or SBDCs, are part of the small business administration. Many local chapters are on nearby university campuses. You can also explore non-profit SCORE centers which offer free business mentoring from retired executives. If there are no local centers near you, information and advice are offered online.

Think of these aids as continued networking. Establishing a relationship with your local chapters opens the doors to enriching insights from small business owners who have the expertise for success.

Build Your presentation and Make Your Appointment

Once you have determined you are eligible, found a financially beneficial lending organization, and constructed your business plan, it is time to apply.

Take a proactive approach toward the application process. You will want to craft an articulate professional package with a succinct method of delivery. Data should be concise. Deliver summative information in the form of spreadsheets, charts, and graphs to quickly demonstrate your plans and knowledge to the loan officer.

From here you make an appointment and request enough time to present with visual aids. You can use large print-outs, PowerPoints, and props if necessary. If you have done your homework, this should be the easiest step. A presentation will only be as good as the preparation.

Good luck, and for more information small business loans, visit the SBA website.

 

Follow Splash and Dash Groomerie & Boutique:

 

 

 

Quick and Easy Guide to Buying a Franchise in 7 Steps

/in , /by

Entrepreneurs are drawn to franchising because it is one of the safest ways to open a business. Buying a franchise model is buying a concept that is already developed. The tools and resources to guide your success are keenly sharpened. Think of franchising as following a roadmap. Without a map to outline your business trek, you will be stranded. Instead of getting a tow, you’ll be declaring bankruptcy. But with a roadmap, your are provided with a track record of success, a strong brand, and support system where you can leverage your skills to operate a business you can be proud of. Not to mention make some well-deserved money in the process.

According to Investopedia, the definition of a franchise is: “a type of license that a party (franchisee) acquires to allow them to have access to a business’s (the franchisor) proprietary knowledge, processes, and trademarks in order to allow the party to sell a product or provide a service under the business’s name.”

Of course, with any investment, there is risk and challenges ahead. The best way to prepare for the inevitable is to be prepared. This 7 step guide will help anyone interested in buying a franchise the roadmap to do it right!

1) Ask Questions First, Buy a Franchise Later

The key to partnering with the franchise of your dreams is due diligence. The first step is research. First, figure out what kind of business you want to own. Since you have decided to buy a franchise you can forego traditional start-up routines. Successful franchises have already explored market gaps, capitalized on niche consumer trends, developed unique revenue streams, and refined back office systems that will save time.

So, before buying a franchise, you need to pick an industry. Do you see yourself owning a business services unit like The UPS Store? Running a pet grooming franchise? Or do you want to be a fast food titan?

Take a reflective look into what truly makes you happy and where your passion lies. This will keep you motivated when unforeseen events occur. Next, you will need to identify your budget. Pour over your personal finances to delineate your equity. Your capital, liquid assets, and net worth will all help you paint a picture of how much you have to spend. You may consider taking out an SBA loan or contacting a CPA to help with the process. This self-appraisal will be part of the template used to shop before buying a franchise.

Once you have determined the style of franchise, and verified your finances, you can begin researching various companies in your prospective segment. As your extensive research goes underway, you will be hearing a lot of sales pitches. Franchises across the board put huge efforts into selling their models. This is why it’s important to find the perfect fit for you! Select options that align with your values and vision—find a business you want to own. Also, take into consideration your personal strengths and weaknesses. Does this franchise provide support in areas you will need help with? Will this franchise support the areas you have experience in?

Researching and buying a franchise is a life-long decision and should be treated as such!

2) Make a Business Plan

Take into consideration all the research you have compiled. Review all the information you have gathered from prospective franchisors and compare this with your own research into the marketplace conditions of the industry you are interested in. From these statements, create a business plan. This should include all your investment costs and projections for your return on investment (ROI). Differing franchise fees, royalty fees, and potential price of inventory all need to considered. A huge mistake many novice franchise owners make is underestimating their startup costs. You don’t want to run out of money before you can get the doors open!

The quality of your business plan can affect the likelihood of getting an SBA loan, knowing how to analyze a franchise agreement, and will detail your legitimacy of buying a franchise.

3) Tour Franchises and Attend Discovery Days

Once you have tapered through definite non-fits and have discerned a few franchise models you are really excited about, it is time to start reaching out to franchisors. This is the first step in an ongoing conversation you will have with their team.

Some franchise models have ‘discovery days.’ This is a tour of facilities that will show you what you can expect as a unit owner. Always request to speak to current franchisees. One of the most important questions to ask them is, “Would you do it all-over-again if you could?” If franchisors are reluctant to get you into contact with franchisees—this is a red flag!

Good franchisors should be supportive and knowledgeable. Their goal should not be to sell you their franchise, but to provide you with the knowledge to make an informed decision. During your initial conversations—in person or conference calls—you will typically undergo an interview process. The goal of this interview is for all parties involved to examine the details of you buying a franchise.

4) Review the Franchise Disclosure Document & Sign the Franchise Agreement

Once you have made the final decision to proceed with the franchise that is the best match, you will need to review the franchise disclosure document (FDD). The FDD is a non-negotiable legal document that exhibits all pertinent information you will need to know.

An FDD includes:

  • Franchisor/CEOs/Parent Companies/Affiliates
  • Business Experience
  • Litigation
  • Bankruptcy
  • Initial Fees/Other fees
  • Territory
  • Restrictions/Trademarks
  • Obligations of Parties
  • Financial Performance Representations

After receiving the FDD, carefully scrutinize every detail. If it will make you feel more comfortable, you can hire a franchise attorney, or an accountant to help you decipher the details. This is not always necessary, but if you feel it is needed—please feel encouraged to do this. Once you are 100% confident and have met all the requirements for franchise ownership you can sign the contract with the franchisor.

5) Training and Support

A well-equipped and reputable franchise model should have an internal orientation and training program. This is usually a requirement of all new franchise owners, despite personal experience. Some franchisors also require on-site training. This is a good thing! This will be first-hand applicable experience. This training will also provide face time with a veteran franchisee. One of the biggest mistakes you can make is ignoring the advice of experienced franchisees.

You should also be wary of travel expenses during a company’s training program. Many times you will need to visit corporate headquarters, book a hotel, or purchase materials for training. These will be paid at your expense so be aware of the costs before starting a training program.

6) Location, Preparation, & Construction

One of the biggest variables in your franchise’s success is having a strategic location. For brick-and-mortar locations, the storefront should have high visibility, be easily accessible, and centrally located  to your prospect consumer. During your research of an intended market, you should develop a feel for the demographics of the area. Franchisors often assist with securing locations.

You will also need to consider the competition. Most territory agreements will ensure that a franchise will not cannibalize the company, but competing businesses in your sector can threaten your business. Find the most advantageous location and begin construction.

A build-out design is dependent on the type of franchise you choose to go with. A restaurant franchise will need a different build-out than a personal services franchise. If you are planning to have retail area, make sure that your contractor can build the space you need. Franchise companies may support you by supplying blueprints, securing locations, and providing brand aesthetic.

7) Ready Your Franchise for Opening Day

After buying a franchise, there is still an immense amount of work that needs to be done before you can have a grand opening. Most small businesses begin with a soft opening to fine tune the system. Franchises provide many things like support with hiring and training staff, providing a POS system, and facilitating an initial stock order.

Revolving around what type of franchise you have decided to open will dictate the tasks that need to be done. Many franchise owners focus on marketing to potential consumers. Much of this is done digitally. Be sure not to market beyond your staff’s ability to service customers, especially during the first few months of being open.

Now, the Grand Opening! Once all the kinks are worked out you can begin perfecting your franchise and if you work hard, you can see a swift ROI and even continue on to expand your franchise empire!

Good luck!

 

Follow Splash and Dash Groomerie & Boutique: