Opinion: Startup advice: Do homework, consult veterans

Many financial institutions have strict requirements that may mean you cannot qualify for a conventional loan, but backing by the U.S. government is an option through the U.S. Small Business Administration.

The SBA has helped small-business owners get business growth and start-up money since 1953. In fact, we may be considered “experts” in not only financing help but in other ways to make your business successful. It is always a good idea to bring SBA to a lender’s attention or call a district SBA office prior to seeking financing. In Springfield, the SBA branch office phone number is (417) 890-8501.

There are benefits to SBA financing programs that help lenders overcome their traditional concerns and take bigger risks.

First, SBA can guarantee a small-business loan for up to 80 percent of the lender’s loan risk, meaning if for some reason you cannot pay your loan, your lender can recoup part of their loan risk. Sometimes this translates to a lower interest rate and some SBA loan programs offer a longer term for pay back.

As an applicant, you may be able to inject less money down, thus leveraging your investment capital.

There is no prepayment penalty on a 7(a) SBA-backed loan and after five years of payment on an SBA 504 loan, meaning your success is more highly rewarded than with some conventional loans.

SBA-backed loans cannot contain balloon payments, so there is no need to apply for a loan renewal.

Some SBA programs allow longer repayment terms thus helping you to improve the cash flow in your business.

A good personal and business credit history is still required for any SBA-backed loan since there are taxpayer dollars at risk. Improving your credit history should be your first concern before ever applying for a business loan.

Both lenders and the SBA require you to develop a reasonable, well-thought-out loan request, including the amount requested, purpose of the business and a detailed breakdown of the use of funds requested. This is more commonly known as a business plan, and includes a detailed sales and marketing plan.

The business plan should additionally answer the following questions: What is your potential market? Who are your potential customers? Who are your competitors and where are they? What sources of supplies will you need and where will you get them? How many employees will you need and what are their wages? What is your experience in management or ownership? Where is the business located? What are your estimated lease/building/purchase expenses? What will your utilities and other overhead cost?

During a startup, you must cover your living expenses in other ways than with the business loan. Setting aside money for the start-up period is not only a good idea; you may be required to show there will be sufficient income outside of the business – a spouse’s income, for example – to cover living expenses.

In a startup business, there probably will not be enough collateral in the business to secure the loan, so personal guaranties with your personal assets will undoubtedly be required. It may be that you have employees who have a vested interest in the success of the business, and who will, in turn, contribute to its success.

It is often most helpful to have previous experience with your industry and/or product line, but another consideration is how you will like the “business” part of your business: dealing with employees, payroll, reports, etc. Seeking out at least two other entrepreneurs of whom you can ask advice is a good practice. SBA finances SCORE – Counselors to America’s Small Businesses – to help get you started off square with taxes and other local, state and federal obligations.

The sage advice I offer if you’re starting really small: look at your dream business to consider if it is possible to start home-based. With today’s technological advances it may be possible. And don’t quit your day job until you are assured your income is steady and the bills (and loan payment!) can be covered.

SBA offers Web sites with excellent information available for free at www.sba.gov/starting.

Taking the time to take advice throughout your process is never easy. But I hope you will take a highly traveled and tested route to begin a successful business – the wise counsel of those who’ve been there before. After all, it’s your American dream and that makes it worth your time!

Sam Jones is the Region VII SBA Administrator.

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