Finding the funding to expand your business

Posted on 30. Aug, 2009 by admin in Shop Talk

by Yvette Davis
Everyone knows startup companies need cash to get going. But older companies sometimes need that extra influx of cash to expand and grow. Options for getting the cash vary. Local commercial lending experts give an overview of the various lending products available.

Commercial loans

Claudia Cockerham, senior vice president and business market manager for Peoples Bank in Wenatchee, said no matter what product the situation calls for, ultimately the lending process is the same. Whether the funds are to buy a building, add a new product line or even out the revenue stream, Cockerham starts with an assessment of where the business is now and the overall scope of the project.

“We want to know if it’s feasible,” she said. “Our job is to look at long-term projections and repayment of the loan.”

A review of the company’s financials follow. Items Cockerham said she most often looks at include:

• Three year’s business and personal tax returns;n current financial statements;
• profit and loss statement (within last 60 days);
• balance sheet (within last 60 days);
• personal financial statement;
• personal and business credit reports.

Cockerham said in most cases those items are needed to obtain a clear picture of the borrower’s debt to income ratio. In today’s economy, liquidity is important. That can be in the form of cash reserves, she said, or the bank will also look at forms of collateral. That may include commercial or personal real estate.

In some rare cases they may look at a free-and-clear owned vehicle. The bank can also use inventory, equipment and accounts receivable as collateral, and will sometimes lien out-of-state property as well.
Businesses that have a less-than-stellar credit past may be able to qualify for a Small Business Administration loan, which Cockerham said is now less expensive than it used to be.

“They’ve dropped the fees on those quite a bit as part of a stimulus effort. But it doesn’t cost anything to come talk to us,” she said.

Quest Revolving Loan Fund

If a business does not qualify for a standard commercial or SBA loan, the loan application may be sent to George Buckner’s desk for additional consideration.
As administrator of the Quest Revolving Loan Fund, an economic development organization that lends to startups to create jobs and also helps companies expand to maintain jobs, Buckner often comes in as the last line of defense.

“We are the lender of last resort,” he said. The good news is that by the time the business has worked its way through SCORE or the Small Business Development Center to get to him, most of the paperwork is already done.

All that remains is for him to review it and forward the information to the board for approval. If it happens to be one of Quest’s existing customers seeking expansion money, the loan package is updated rather than starting from scratch. If it’s a brand new client, the whole loan application is required including financial statements, cash flows, business plan, etc.

“It doesn’t have to be ‘Gone With the Wind,’ but it has to be complete enough to show who they are and what they are attempting to do, and how cash flow will look after they get the financing,” he said.

Buckner said he has done loans for equipment upgrades that help keep businesses in business. Communications, technical or production equipment — even bakery equipment — would fall under those guidelines. The Quest product is a typical revolving loan with a monthly payment similar to a mortgage. Depending on the size of the loan, he can collateralize the loan with the equipment, home equity, or sometimes vehicles — either business or personal — if they have any real value.
Quest’s loan guidelines are less stringent, he said, but in more than 22 years in business, the organization has had few losses.

Equipment finance

An alternative to going to a bank to finance new equipment is going to a finance company. One such company with local representatives is Pinnacle Business Finance.
Bo Petterson, account representative with Pinnacle, said that though the rates his company offers are a little bit higher, its 24-hour-or-less approval can’t be beat, especially when business owners need equipment fast. But the equipment must fall within certain guidelines for Pinnacle to consider lending.

First, the equipment must be for a business. The firm does no consumer financing. Second, the firm does not lend on real estate.

“We don’t lend on permanent structures of any kind,” Petterson said.

In addition, no real estate equity or vehicles are required as collateral. In all cases the equipment itself is used to guarantee the loan.

Third, the equipment must be able to be moved or relocated easily. In other words, the business owner, should they move, must be able to take the equipment with them. Pinnacle won’t lend on anything staying with a building.

Most businesses expand at one time or another, Petterson said, and that often involves a move.

Pinnacle can finance things like phone systems, security systems, office furniture and equipment, computer systems, and even things stored outside like bulldozers, trailers and backhoes. Even gymnastics equipment and a ground mounted air conditioning system qualify.

And the loan approval process is quick, Petterson said, because it’s simple. All the business owner needs to do is fill out a one-page application and wait for a phone call. No tax returns or business plans needed.

“It’s a fairly painless process for the consumer,” he said.

But though Pinnacle beats the typical bank loan process by up to a couple of week’s time, it can’t beat the SBA’s great loan rates. That’s okay, he said, because some customers just need the equipment in a hurry.

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