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    8 Replies Latest reply on May 25, 2012 8:04 PM by Erik Salmon

    Your biggest frustration with financing

    editdementor Newbie

      I am starting a franchise finance business to help entrepreneurs get their business off the ground. I am tired of dealing with banks and their long application processes and I would like to help others realise their dreams.

       

      I would like to hear your frustrations about obtaining finance for your franchises.

      • What were the problems?
      • What could the banks have done?
      • How were their staff?
      • Did they understand your business?

       

      I would also be interested in hearing from established business-owners - how did you refinance your store refurbishment? Did they help you with cash flow, tax etc?

       

      Any help would be much appreciated.

       

       

      D

        • Re: Your biggest frustration with financing
          Brett Penrod Wayfarer

          I would like to see answers as well.

          • Re: Your biggest frustration with financing
            Erik Salmon Scout

            I have been in the business credit industry for over a decade and all though I can appriciate its fustrating dealing with banks, one of the biggest issues with funding a startup is that most people trying to start a buisness lack buisness sofistication.

             

            They may know their trade and industry however many do not know what it realy takes to run a buisness and lack basic knowladge about buisness finance and take sortcuts that they realy should not that cause buisnesses to fail from the start.

             

            I would say if you realy want to reduce the fustration you should  offer a buisness finance funimentals course, show them how to create a funding plan and meet the lending underwriting criteria prior to applying for financing in order to impove the odds of being approve for financing.

             

            I wish you good luck in your business financial services business.

            • Re: Your biggest frustration with financing
              fxweb Adventurer

              I and my wife have been trying to obtain secured loan of $60K for close to 2 years. The frustration reached its peak this month.

              All the financial institutions from what I take are scared to death to loan any money. The vibe I'm getting is that federal government

              is bent on killing a small business and the enterprises by imposing impossible rules and regulations on the lending institutions weekly if not daily.

              Also they are being penalized for not implementing them quick enough. The result is - no small business loans are given, period.

              That doesn't help me at all. I do know how to run business and I know that I have a good plan, financial projection, great location etc.

              Still, I can't finish what I started because of mere $60K that nobody wants to lend. This doesn't make any sense.

              I can go to any dealer lot and purchase a vehicle for $60K (believe me, I checked) but I can't obtain a secured loan for a business for the same amount?

              Really frustrating...

                • Re: Your biggest frustration with financing
                  Erik Salmon Scout

                  Are you trying to raise funds for a startup or an existing buisness?

                    • Re: Your biggest frustration with financing
                      fxweb Adventurer

                      To make a long story short: We're planning to open a B&B in a great location where there's virtually no competition. That would be my wife’s primary job and my secondary as I plan on continuing to work for my current employer at my new location. We purchased 1850’s the property and renovated it. We've invested close to $60K so far. There are few tasks remaining that require additional funding. Don’t get me wrong – I will open this sooner or later. I’d rather do it sooner and that’s why we’re looking for the small business loan at “acceptable” interest rate. Also Chamber of Commerce and the City itself is very welcoming and anxious about this. I get literally bi-weekly inquiries about the opening date. You have to take that into account before you decide to do business in any particular location. I know few people that didn’t check with the local jurisdictions beforehand and that didn’t pan out for them very well. Anyhow, everything looks great except that I didn’t think it will be that hard to obtain a loan. One more thing: We are working with a local SBA advisor and she lately got really frustrated by the situation more than we are. Her job is to weed out nonsense applications and vest her time into the ones that make sense. According to her our makes a 100% profitable sense but the current lending industry practices don’t. Go figure. Thank you for the interest.

                        • Re: Your biggest frustration with financing
                          Erik Salmon Scout

                          I can appreciate how frustrated you are in this situation, however it sounds like you make the number 1 mistakes startup companies make. Starting before the company is fully funded (enough funding from startup to profitability). I can almost guarantee this is why the banks are not wanting to fund your business on top of your business already being in a high risk category.

                           

                          You may want to read my post in this other forum thread on obtaining funding http://smallbusinessonlinecommunity.bankofamerica.com/thread/33036

                           

                          Now you may think that you should have no problem getting a loan since you can secure it with the property, however you need to look at it from the banks point of view. In our current economy banks all ready have a ton of properties on their books and since your business is in a high risk category, the security by the asset of the property is not gong to reduce much of the risk and my even cost the bank money if they have to take the asset if your business fails.

                           

                          You also say your B&B is in a great location with little competition. Now I do not know anything about your location but you have to ask why there is little competition in the area if its such a great location. You have to be careful of making assumptions with out having the data to back up your business plan, data such as demographics, tourism data etc... You really have to make the case that your company has the capability to repay the loan.

                           

                          My advice to you would to re-evaluate your funding plan based on were your at now. Do a 12 month and 5 year projected cash flow chart based on real data and not your own assumptions to see how long and how much it would take to become profitable. Then adjust your business plan based off of the new numbers and seek funding from friends, family, investors, and hard money lenders.

                           

                          Other areas for funding would be home equity, savings, or retirement. At this point I do not think the banks will lend the business money until you can show a positive cash flow or some other means to repay the loan.

                          You may also find that by re-evaluating your business plan and funding plan based on real data, that the business you want to start is not a viable business for the area or that you really do not have the ability to raise the money to launch the business to profitability or that you have to change something in your business model to make it a viable business. This is were emotions have to be taken out and business decisions made.

                           

                          At the end of the day the banks are looking at 5 main areas when evaluating risk Character, Capacity, Capital, Collateral, Conditions  and you have to make sure that you account for these areas and can show that your company is a good financial risk.

                           

                          I wish you the best of luck in your business venture and I hope this has been helpful.

                            • Re: Your biggest frustration with financing
                              fxweb Adventurer

                              I appreciate the input. Just few words of explanation. What you call a mistake I call an investment. We would've purchase this property regardless. The price was too good to pass on this opportunity. Also I wouldn't call this business as a high risk. Based on real data that was collected for past 2 years business would be profitable from the day one after opening. Also, I mentioned that I am retaining my position with the current firm where I work. Just my earnings are able to sustain this business for as long as I would want without earning a penny by the business. I'm not sure this makes any sense but nevertheless it's true. I did a financial projection based on the data I've personally and carefully collected. Real businesses, real people and real numbers. Understanding that I am not a financial professional by any means I've managed to get our application approved by several institutions. I take it as a personal success because from what I am told 90% of those land in the trash. Most of the lenders presented me with the terms that weren't acceptable as far as the interest. I understand that they too have to make a profit but please do not try to rob me blind!  In my financial projection our numbers show profitability after underestimation of the turnout of clients by as much as 20% compared to other B&B's in the area.  I understand that you may not know the details and not see the full picture with a little information that has been given. I'll be more than happy to explain to someone that would be really interested in taking a serious look at the situation. Like I said. I would like to have this business started sooner and that's why I'm looking for a loan. I really appreciate your respond to my post and please don't take this personally but what you said I've already heard numerous times. What I think the problem with the lending institutions is that they always stick to a presets and templates without looking at the case from the different angles. I understand that numbers are important but when the numbers are right and you still don't get any positive feedback that's when frustration takes over.  I came to this country (legally!) with $1800 in my pocket, 2 suitcases and a green card. All I've achieved is by working hard and learning hard. Did not take any handouts and not asking for one. I'm not asking for charity neither. Lending money to people like me and many others is a business operaiton where both sides benefit. From what I understand, lending institution have to lend money in order to stay in business. :). Not the case wherever you look these days. It's looks like the best scenario for getting a loan is when you already have for ex. $100K in your personal account and want to borrow additional $50K. If that was the case, every person would start business with their own money than all the lending institutions would go out of business. Thank you very much again for the input and please don't take my reply in the wrong way. It's not intended that way.

                                • Re: Your biggest frustration with financing
                                  Erik Salmon Scout

                                  I am not taking your response the wrong way at all. I deal with business clients all the time and your response was just fine.

                                   

                                  On the fact you would not call your business high risk does not change the fact that for traditional lending, it is a high risk venture and the banks are categorizing you as such.

                                   

                                  The fact that you purchased the property out right and consider it an investment regardless of the business starting is a concern. I have several real estate investment clients and they typically purchase properties at a minimum of 30% or below what the retail market would pay and if you did not purchase that property at a considerable discount then you purchased at retail even if it was a good price and that is not an investment property and retail priced property typically will take at least 10 years of holding on to the property to see any real ROI.

                                   

                                  I also suspect that you purchased the property using a conventional real estate loan and not a commercial loan and could be another factor in your in ability to raise the 60k you are seeking. If you purchased the property with all cash then there would be more than enough equity to obtain an asset based loan unless you are not meeting an underwriting criteria that keep you from obtaining a 60k business loan.

                                   

                                  I find that in most cases that when it comes to business finance, entrepreneurs just do not know what they do not know and all I am trying to do is to help you understand the process a little more. Its not that the banks do not want to lend money, they would not make any money if they did not. They have tougher lending criteria. They could be looking at they type of business entity you have setup or lack of one, they look at the level of business and finance sophistication you present or lack of there of. You may have done a great deal of research and have good data but if your not communicating it in a way that satisfies the lending criteria that can be a factor.

                                   

                                  I have no doubt that with your type of determination that you will eventually have your B&B up and running, I just think that in some areas of your business startup process you need some tweaking and a better understanding of how banks evaluate business's for funding to get over the obstacles you are encountering.

                                   

                                  The best of luck to you.