Corrections or additions?
These articles by Kathleen McGinn Spring were prepared for the
March 28, 2001 edition of U.S. 1 Newspaper. All rights reserved.
Getting a Loan For That Start-Up
It often doesn’t take a lot of money to get a small
business off the ground. “They don’t need $200,000,” says
James Smith, director of the Skylands Small Business Development
Center. “It’s usually $10,000 for computers or $20,000 to stock
a deli.” But coming up with that small loan is not easy. Many
lenders don’t want to bother with the under-$25,000 loan, because
it just isn’t cost efficient. And besides, says Smith, it’s more
risky.
“Big businesses have certified financial statements,” he says.
“Small businesses don’t.”
Often the best way for a start-up to go is through a microloan backed
by a government agency. In this area, the loans can be arranged
through
the Trenton Business Assistance Corporation. Smith will give potential
small business owners advice on securing one of these loans when he
speaks on “How to Finance Less than $25,000” on Thursday,
April 5, at 6:30 p.m. at a Raritan Valley College workshop at
Flemington
Borough Hall. Cost: $22. Call 908-526-1200.
Smith has been a banker, a small business owner, and an educator.
He graduated from Fairleigh Dickinson University in 1975 with a
business
degree. He holds an MBA from Rutgers and has studied at the National
Commercial Lenders School at the University of Oklahoma. Beginning
his career in big banking with Citibank on Wall Street, he went on
to work in community banking before starting a consulting business.
Six years ago, he took the position at Skylands. He is now helping
Raritan Valley Community College get its small business development
center up and running.
Smith has seen big changes in banking. Some developments, the savings
and loan scandals, for instance, made it more difficult for small
businesses to get loans. He was a consultant for the Resolution Trust
Corporation, the entity that dealt with the fallout after a number
of banks, swamped by bad loans, went out of business. As a result
of that costly government bail out regulatory control over banks has
tightened considerably, cutting out some leeway bankers may have had
in making loans. At the same time, there has been an unexpected surge
in community banks, institutions that tend, he says, to take a more
personal interest in clients.
“The theory 20 years ago was that there would be just four banks
in the United States,” Smith says. This didn’t happen, he says,
because of technology. “I bank at a small bank,
Peapack-Gladstone,”
he says. “Last weekend I went down to Virginia to visit my son,
and I was able to get money out of my bank.” Even the smallest
bank can offer ’round-the-world, 24-hour banking, he says. Technology
has also made it possible for small banks to handle back office
functions
economically.
Some banks actually like to lend to small businesses, Smith says,
and it’s the job of New Jersey’s small business centers to prepare
these businesses to make a pitch that will win a check. Here is his
advice for getting the money:
Put it down in writing. “Small business owners areenthusiastic and hard working,” Smith says. “But they oftencharge into it without completely thinking through what they wantto do. They make dumb mistakes and waste time and money.”Enthusiasmalone won’t win over a lender. They want details. The best way toturn a business idea into a reality that will attract money is toput it in writing. Possible problems — and solutions, too —will start to show up when the business is sketched out on paper.Get personal. When lenders make a decision on the chancesa new business has for survival, they are looking at more than theprospects for pizza parlors in Princeton or hair salons in Hamilton.They look at the woman behind the business. Personal finance is anissue, and so, says Smith, is lifestyle. “If you’re a single momwith two kids, that’s an immediate concern,” he says. In preparinga business plan, you have to state how much you will have to drawout of the business to live.Business owners with a working spouse whose job comes with benefitshave an edge. “It’s called a differential advantage,” Smithsays. He himself enjoyed this advantage when he started his business.He had children in high school, but his wife was employed and he hadan Army pension. Small business owners without cushions like thisneed to be prepared to explain to lenders how they will supportthemselveswhile the business is getting started, and should put that informationinto a business plan.This is true even for single people who live at home. “You can’tlive on zero dollars,” Smith says. “You can cut yourlifestyle,yes. But you have to eat.”Anticipate objections. Some businesses are just harderto fund. “Restaurants historically are very difficult,” Smithsays. “A lot of people think a restaurant is an easy way to makemoney. It isn’t. Margins are razor thin.” Financing is alsodifficultfor any business with environmental issues. Pool cleaners,landscapers,dry cleaners, photo processors, and anyone else who plans to workwith chemicals that are regulated under environmental protection lawsneeds to be prepared for lenders’ concerns over liability.Meet these concerns head on, Smith advises. Be prepared to showlendershow you plan to achieve above average margins in your restaurant orhow you will handle pesticides safely in your landscaping business.Whatever the business, figure out the obstacles, then clearly statehow you will overcome them.Prepare to work hard to secure financing, Smith says. If nothingelse, the process is a fit prelude to life as an entrepreneur. “Ifyou like working eight hours a day, don’t start your ownbusiness,”he says.A client at the small business development center who impressed Smithwith her willingness to work hard to secure financing was a youngwoman who wanted to start a business that chauffeured children. Theidea came from her own experience in trying to juggle a job with theneed to get her child to school, appointments, and activities.”I gave her a list of 25 things to do,” Smith says. Amongother things, she was to look into insurance, state and localregulations,and potential clients. The woman quickly returned, her research nearlycomplete. She is now on the verge of buying her third van and isgettingready to franchise her business. “She’s working twice as manyhours,” Smith says, “but someday I expect she will drive upto see me in a new Mercedes.”Top Of PageMore Loan SourcesThe Trenton Business Assistance Corporation (TBAC) isset to receive $750,000 in its fifth round of funding to provide areasmall business owners with MicroLoans of up to $35,000. The U.S. SmallBusiness Administration developed its MicroLoan program in 1993. In1994, TBAC became an SBA MicroLoan intermediary and since then hasexpanded its territory from the City of Trenton to Mercer, Burlington,Hunterdon, and Warren counties. In 2000 TBAC approved 40 MicroLoansfor $700,000.In addition to the $750,000 for new loans, TBAC will receive $150,000for the SBA to provide technical assistance to area small businessowners.Previous StoryNext StoryCorrections or additions?This page is published by PrincetonInfo.com— the web site for U.S. 1 Newspaper in Princeton, New Jersey.
