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    3 Replies Latest reply on Mar 2, 2009 10:12 PM by NoBullFunding

    Financing a Small Business

    Miss_Biz Newbie
      Hello, I am new to this Small Business Community. I am looking to start a small business, in retail specifically. The retail space that I'm looking to lease is in my apartment complex, and perfectly positioned across the street from my college. It is a high traffic area where thousands of students walk by during the week.

      My dilemma: Financing.

      I've never owned a business before and have limited resources. My business partner and I are in the process developing a detailed proposal in an attempt to secure a small business loan. Our credit is good, but we're both still in college. I'm curious about the likelihood of us receiving an financing from a bank. I would like to avoid investors simply because I want to do it our way. We have good ideas, and I am fully confident we will begin a profitable business if we are lucky enough to recieve a loan.

      I would greatly appreciate feedback on the matter.
        • Re: Financing a Small Business
          LUCKIEST Guide
          Financing a Small Business, Welcome

          Anybody looking to start a small business should get in touch with SCORE. SCORE is FREE both in person and online.
          SCORE can help you finish your detailed proposal (called a Business Plan). The plan is a flexible document that should change as your business grows and changes. Many times a SCORE Counselor can help ease the way to the bank's loan officer.

          Best of luck, LUCKIEST
          • Re: Financing a Small Business
            bmt2008 Adventurer
            What type of retail store are you looking to open? Hopefully it caters to college students or persons in you complex.

            In regards to financing, most lenders (business or personal) look for two thing - the willingness to repay and the ability to repay. The willingness to repay is shown from you credit history - have you repaid lenders in the past. The ability to repay is shown from your debt load (debt-to-income ratio).

            Most lenders today want to see a FICO or similar score at or above 700. They also want to see that you or the business makes enough to service the debt payment - meaning that if you are required to pay $500 per month you have to at least make that much above and beyond what your personal or business expenses are. Additionaly, most lenders want to see 1.5X or even 2.0X the required payment. This show lenders that should your business fall into a slow period, you would still earn enough to cover the payments.

            Suggestions - try to ask the properitor of the building (the person you would lease the space from) if they would be willing to lease the space for a percentage of your revenue. Thus, as you earn, you pay the lease. Or, find another partner with money - not an investor but a partner who has experience as well as funds.

            Just some thoughts
            • Re: Financing a Small Business
              NoBullFunding Scout
              Hi Miss Biz - In a nutshell, getting bank financing on your own will be extremely difficult. Without any prior experience or money to put in, it won't really matter how detailed or well thought out your business plan is.

              Before this current economic crisis, your chances would have been slim, but there were lenders that could at least consider the thought of working with you. But in today's environment I regret to tell you that you that lenders have retreated to real estate secured, large capital injection deals, with very few exceptions.

              If having this business is something you truly want to pursue, here's what I'd suggest: Start out by working out for someone else who owns the exact type of business you want to run, as banks are looking for 2-3 years of experience in the exact business you want to own. Second, you will need to start saving, as you'll need to have 20-30% cash to put into the store. So if the total project is $100,000, you can expect a maximum loan for $70,000-$80,0000.

              Writing a business plan can be a good exercise, but in your case it won't be the difference between getting a loan and being declined.

              I hope you don't take my comments as negative, but it's the reality of small business finance.