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    7 Replies Latest reply on May 19, 2009 1:16 PM by Fighter1

    Over-educated but under-experienced for SBA

    jess42 Newbie
      Hi Everyone,

      I am opening a coffee shop in my neighborhood, but I cannot seem to find a lender (even a local community bank) that is willing to lend to me. To give you an idea of our circumstances, the shop is located in an historic commercial district that has deteriorated over the last 50 years. Our local government has injected money into the neighborhood in order to revive the area and promote economic development, and my project is exactly what they are looking for. They don't offer loans, though.

      Next year a county library is opening two doors down from the space I've leased, and the city is sprucing up the main street I'm on by widening the sidewalks and putting in planters and lampposts. A few other shops have gone in, but it is still not what it should be. The demographic has changed drastically over the last ten years, with many middle class families replacing the blue-collar residents that used to live here. The mayor-elect lives three blocks away, and the city sees me as the pioneer for the neighborhood and my business proposal the future of our district.

      Unfortunately, banks are freezing their lending, and the SBA is strict with their 3 years of management experience in the business you are opening. I have retail experience, but not coffee. I have a master's degree, and previously worked in finance, but the SBA seems only concerned with my industry experience. My husband and I have another business we started from the ground up five years ago, and that business (being run by my husband solely now), has doubled its profits every year for the last 3 years.

      My feeling is that I know the economy is bad, and that is putting
      everyone in a lending freeze - but the only way we ever get out of
      these bad times is if someone decides to take a risk and start moving
      forward again. I'm willing to take that risk and move forward; I'm
      willing to give local, unemployed folks jobs; I'm willing to put in the
      sweat and tears to develop this neighborhood into what it should be - I just need someone who is ready to jump on board with me...

      Does anyone have any ideas? We have equity in our home, we have excellent credit (700+), experience starting and running a small business, and lots of education and community support... we even have another business loan from our first business that will be paid off next year.

      Any ideas or recommendations would be greatly appreciated.
        • Re: Over-educated but under-experienced for SBA
          Fortis Adventurer
          Hello Jess42,

          Hope all is well. Email me when you get a moment with a bit more about your business and the type of funds your seeking.


          Fortis Capital

          • Re: Over-educated but under-experienced for SBA
            25trekker1 Adventurer
            An excellent and relevant post. I think an answer to your question is forthcoming shortly from the Federal Small Administration. Please let me know how it turns out for you.

            Curt Hanson
            Hanson Coins Plus
            • Re: Over-educated but under-experienced for SBA
              NoBullFunding Scout
              Your story is a sign of the time Jess. As the default rate rises (I saw on cnnmoney that SBA loans have hit a 12% delinquency rate), even SBA lenders are flocking to more stringent guidelines despite a 75% guaranty on the 7a product. Direct management experience and requiring real estate are 2 big changes, reason being that we are seeing so many businesses going under. So many of them were startup businesses run by people who have "related" but not direct experience. In an economy like there, taking a chance that you'll figure it out is not something lenders are willing to gamble on (you missed that boat by about 12 months!)

              With regards to your statement that "the only way we ever get out of these bad times is if someone decides to take a risk and start moving forward again", I'd say that taking too much risk is the reason we are IN this mess, and throwing more money into businesses that are doomed to fail is just not something lenders have any interest in doing.

              If you want to open a coffee shop, you'll need to put up a lot of cash, and probably some real estate as collateral. I really don't blame the banks, as I spend my days trying to figure out how we are going to liquidate tables and chairs to collect a $7,000 against a loan of $300,000. The banks are now licking their wounds, so unfortunately your path to a grand opening will be harder than any entreprenuers have seen in years.
              • Re: Over-educated but under-experienced for SBA
                LUCKIEST Guide
                Over-educated, Welcome Jess??

                *It sounds like a *family-friendly coffee shop in the historic neighborhood is a winning situation.

                Have you developed a Business and Marketing Plan that I can read??

                How much money are you looking for?? and for how long??

                • Re: Over-educated but under-experienced for SBA
                  bmt2008 Adventurer
                  Most area neighborhoods that have downtown or neighborhood revitalization organizations also have economic developments groups tied directly with the city. Many of these economic development organizations have either local or state funds that can be given out in grants. These grants do come with strings - for example they want to see job growth at or above local area salary (wage) levels.

                  Have you checked with your chamber of commerce to see if any of these exist in your area? Might even want to look at the state level.

                  Other than that, there are few remaining personal and business loan organizations (unsecured loans) that might fund you - usually up to $125K - provided your credit remains strong and you can demonstrate an ability to repay the note.

                  Just some thoughts
                  • Re: Over-educated but under-experienced for SBA
                    Fighter1 Newbie
                    I actually agree with your assessment that it will be necessary for the SBA and lenders of conventional loand to take some calculated risks to get us moving again.

                    The risks they took that brought us here were not calculated, but simply looked at as easy money through the lens of greed. Not a pretty picture, and yet there are hundred of billions of dollars to go around to those who have already proved they can FAIL.

                    A 12% delinquency rate is certainly not good. I would ask what have the rates for SB loans been yearly over the past 20 years. That would help me gain a perspective on how "badly" SB owners are running their businesses.

                    On the bright side, 88% of those who have SB loans are on track and succeeding. Does that count for at least something?

                    I read an article recently that explored the idea of removing the lending institutions from the SBA process and having SB owners go directly to the government. It removes the bank risk and the government has the same risk as if they funneled the money through a bank.

                    I remember something my father told me about processes, people and business. The more layers, the more opportunity for difficulty.

                    I think that applies here.