How to Get Funding That is Best Fit for Your Small Business

How to Get Funding That is Best Fit for Your Small Business

Small businesses (SMBs) are at the core of the US economy. They are the largest employer in almost every sector.  Despite this, it has been proven to be extremely difficult for business owners to find favorable financing to sustain and grow their business.  In fact, many have found that it is far more difficult to finance their operation than it is to run it.

How to choose the right funding option

Recently, a business owner asked me about which type of financing was best for him.  The obvious answer is: the type of financing for which you will qualify.  This will set the tone for your capital search. Obviously, the primary goal is to find the type of financing that offers you the most money for the lowest cost and the longest repayment terms – with the fewest downsides. The reality is that this set of terms will vary wildly depending upon the credit quality of the applicant.  A problem for many SMB owners is that they develop a preconceived notion of what their financing SHOULD look like as opposed to what it will REALLY look like based on the credit quality of the borrower.

Lo primero que debe hacer al iniciar su búsqueda de financiamiento es hacerse una pregunta: Soy financiable? Este es un término amplio que indica si puede ir a su banco y obtener un préstamo o financiamiento de equipo bajo los términos tradicionales o con el beneficio de una Garantía de la SBA. En mis años de experiencia en finanzas comerciales y como propietario de PYMES, puedo decir que la gran mayoría de las PYMES NO son financiables, incluso cuando han escuchado a su banquero decir que podrían obtener un préstamo. Los términos para el financiamiento tradicional rara vez se presentan de manera realista durante el proceso de solicitud y la mayoría de las solicitudes se rechazan porque el prestatario no puede cumplir con los requisitos de la institución crediticia.

Be objective

Lo segundo que debe hacer es recordar ser objetivo y determinar exactamente cuáles son sus posibilidades de aprobación en varios productos y con los diferentes tipos de prestamistas. Debe aceptar que existe un diferencial de precios de riesgo con diferentes tipos de financiamiento y con diferentes prestamistas. Cuanto más fáciles sean los términos de crédito y más rápido, generalmente, la originación delimita una financiación más cara. En muchos casos, vale la pena el costo, ya que otros prestamistas no lo financiarían a cualquier costo.

La tercera cosa que debe hacer es obtener tantas ofertas como sea posible: no se sienta insultado por una oferta de financiamiento, incluso si es oneroso y parece indignante. Siempre se puede pasar. Al evaluar las ofertas, debe recordar que se aplica la Regla de oro de los préstamos: "¡El que tiene el oro - rige!"

Obtaining small business funding that’s best for you

El entendimiento básico de esta guía es que usted ya es un negocio operativo. Las empresas nuevas son una discusión completamente diferente. Entonces, si ha estado en el negocio por al menos 1 año, ¡siga leyendo!

Las opciones de financiamiento de las PYMES cubren un amplio espectro: desde bancos tradicionales, cooperativas de crédito y prestamistas institucionales no bancarios hasta prestamistas no tradicionales, compañías financieras alternativas, plataformas de financiación colectiva y amigos y familiares.

Los bancos, las cooperativas de crédito y la SBA pueden ofrecer tasas más bajas y plazos más largos, pero los obstáculos para obtener uno de estos préstamos son considerables. En el otro extremo del espectro se encuentran compañías financieras alternativas, empresas de alquiler de equipos e incluso sus tarjetas de crédito personales, que comparten todas las mismas características. Son mucho más caros que el financiamiento bancario tradicional, pero están fácilmente disponibles y son mucho más fáciles de obtener aprobaciones. El verdadero valor del dinero está en su disponibilidad. ¿De qué sirve un préstamo del 6% de su banco si no puede obtener la aprobación? Por otro lado, si usted es una empresa de alta calidad crediticia, ¿por qué debería abreviarse para obtener un alto costo de financiamiento?

Veamos si podemos ayudarlo a manejar sus expectativas y brindarle información sobre la perspectiva de los prestamistas.

What do the banks and the SBA want, so I can get funding?

I have spent many years around bankers and have asked a number of them what qualifications are needed for them to consider lending to an SMB owner.  They always offer the obvious response: everyone has their own unique circumstances underwritten at application. But almost every banker I have spoken with talks about the “Five C’s of Credit”.  This is a basic set of criteria that they all use when evaluating a company for a loan:

Capital

Los prestamistas quieren ver que tienes piel en el juego. ¿Cuánto capital duro has puesto en el negocio? No les importa el sudor, quieren ver el dinero. La mayoría de los prestamistas quieren ver entre el 10 y el 40% del capital total en el negocio proveniente de los propietarios. Quieren ver que hay activos duros y blandos de maquinaria, equipo, bienes raíces y algunos incluso considerarán tecnología de TI patentada. Quieren compartir el riesgo con usted, y su inversión asegura que usted también sufrirá si el negocio fracasa.

Collateral 

These lenders are “risk averse”. They want to know that if, for some reason, your business fails to pay back the loan that they can attach assets and liquidate them to offset the debt. This is one of the reasons that they want to see meaningful assets in your company before lending to you. Not all loans require collateral, but if you want favorable terms, you should expect it.  In the case of SBA Guarantees, you will be required to pledge not only the business assets, but all owners holding 20% or more of the business must pledge their personal assets as well.  Homes, cars, cash, jewelry – everything. If you can’t pay back the loan, you could lose everything.

Capacidad 

A lender must have a realistic expectation that the borrower does indeed have the capability to repay. Lenders rely on numerous metrics and factors in determining your “capacity”. First among these is your personal credit score. Even though this would be a business loan, the main driver of an SMBs success is the owner. If you don’t pay your creditors for personal debt, it is a reasonable conclusion that you won’t pay your business debt. To get to the next step with a bank you will need a strong FICO of over 700 with no liens or judgments. The bank will also look to your current vendors for your payment history. Most lenders look for 1.25x or higher, which relates to the big driver of cash flow of the business. If you have cash, then they know you can pay back.

Conditions 

This looks at the reason for the loan and if the bank feels that you will be successful in reaching your goals. The bankers will look at everything from the economic conditions in general to those in your local area. The industry you are in is also a strong indicator of success. The “SIC code” of your business provides risk assessments for your business – and it can work with you or against you. Most importantly, the bank wants to understand the purpose of the loan and if the proceeds will help you grow the business as opposed to adding to your debt load. You will need to provide an explanation for the amount you need, why you needed it, details on how you plan to spend it and the benefits you expect to gain from the loan.

Character 

Este es un factor difícil de evaluar, pero el banco básicamente está tratando de determinar si usted es de buen carácter y se puede confiar en su desempeño. Esto puede ser muy subjetivo y, a menudo, lo determinan los banqueros con los que habla al preparar su solicitud. Quieren saber lo más posible sobre la persona detrás del negocio. ¿Eres un novato o un profesional experimentado en tu campo? ¿Cuál es su fondo? ¿Tuviste logros previos que deberían conocer? ¿Tiene referencias profesionales sólidas de proveedores, clientes o proveedores de crédito? ¿Tiene defectos que podrían influir en el proceso de toma de decisiones, como arrestos, DWI o problemas de impuestos anteriores?

What types of lenders do I have to choose from for funding?

Large Commercial Banks

These are the big guys. You know them – JP Morgan Chase, Citibank, Wells Fargo, Bank of America. These banks all have assets greater than $10 Billion and are large bureaucratic machines. While the largest banks account for about 40% of SMB loans, they do very little lending to Mom and Pop businesses or those that fall within the agriculture industry. Community banks are far more active in those sectors. Large banks are better for bigger, more established companies who seek over $250k in loans. This is their true minimum lending floor – it’s simply not worth their time processing smaller loans.

Mid-Tier Regional Banks

Estos bancos con múltiples sucursales tienen una gran cantidad de poder local y son más receptivos a las necesidades de sus clientes SMB. Tienen bases de activos sólidas pero practican las mismas prácticas de suscripción estrictas que los bancos más grandes. Su conocimiento local hace que sea mucho más fácil comunicarse con ellos y muchos son socios fuertes de la SBA que pueden ser de gran ayuda.

Small Community Banks and Credit Unions 

Estas son las instituciones de base para que trabajen las verdaderas PYMES. Todavía creen en el valor de conocer a sus clientes y su comunidad, y trabajan arduamente para desarrollar fuerza en todos. Aquí es donde se originan la mayoría de los préstamos agrícolas de los Estados Unidos. Sin embargo, a los bancos comunitarios más pequeños les resulta difícil competir y cierran a un ritmo regular. Esto requiere que sean más conservadores, lo que puede influir en el resultado de su solicitud de préstamo. Solo el 40-45% de sus solicitudes de préstamo son aprobadas.

Instituciones financieras no bancarias

Access to these lenders is usually limited to higher growth specialty finance. These groups rarely, if ever, consider Main Street businesses. Large firms like CIT or Apollo will provide multi-unit franchise financing for restaurant or hotel chains, but not loans to single unit operators. These groups include private equity firms, hedge funds, family offices and high net worth individuals. You must be well prepared with strong documentation and the ability to pitch your deal and defend your representations with facts. This is not for financial amateurs or novices.

Alternative Funding Companies 

Over the past 15 years, this has been the fastest growing sector for SMBs to access capital. Factoring companies, merchant cash advance, FinTech online lenders and equipment leasing firms all fall into this category. Most of these companies lend from banks and take on the credit risk for the performance of their clients in return for higher fees.  The main attractions are speed, less documentation and higher approval rates. They will often look for a blanket UCC security agreement over the assets of the company, but do not require the hard-collateral pledges that banks and SBA require to provide loans. Their cost of capital is high because they take considerably more risk to provide financing than banks do.

Crowdfunding 

Crowdfunding appears to have key advantages of being quick and easy to raise funding, but it really isn’t as easy as it appears. First, you need to determine the type of crowdfunding you wish to pursue. Rewards based platforms solicit donations for worthy projects or companies in return for “rewards” that you provide. Debt and equity crowdfunding involves high levels of transparency and reporting as well as time consumption and expense. Many Crowdfunding platforms have specific rules governing time limits and funding goals. If you don’t reach your goal after a specified time, you lose. Or you may encounter an “all or nothing” funding policy, precluding you from accessing capital raised beneath your goal. Some users have been disappointed to realize that often the success of the campaign revolves around their social network. This means that you are really doing a “friends and family” round – but incurring fees.

Corredores independientes 

There has been a dramatic explosion in the number of independent brokers/“finance advisors” who are marketing loans, lines of credit, invoice factoring, receivables financing, cash advances, equipment leasing and other funding products to the SMB community. Some brokers are reputable and can be extremely beneficial in expediting the process of finding financing. They can look at the overall parameters and know where to place the application for fastest approval. On the other hand, there are bad players who are only interested in their own enrichment. Some ask for retainers up front and fail to deliver. Buyer beware. Know who you are dealing with. Look for complaints and ask a lot of questions before trusting your financial information to an unknown outsider.

Friends and Family 

Este es uno de los lugares más comunes donde los propietarios de PYMES buscan capital semilla o capital de trabajo general. Si bien esto puede ofrecer pocos obstáculos para la financiación, ya que se trata de un prestamista familiar y de apoyo, el incumplimiento puede afectar negativamente su relación con estas personas por el resto de su vida.

Personal Savings, Home Equity and Credit Cards 

Before draining your savings, your business plan should reflect cash reserves for funding to carry both you and your business through hard times. Most businesses have ups and downs. The failure to plan for this can be catastrophic. The use of funds from a Home Equity loan or Line of Credit can be a very useful tool. Interest rates are relatively low and the money is not being lent on the qualifications of your business. It is being given to you against the equity value of your home. The downside is that if your business fails, you could lose your home as well. Also, some SMB owners feel it is reasonable to finance their business with their personal credit cards. This can cost upwards of 29% compounded, which is a formula for disaster.

Landlords and Real Estate Developers 

If you have a brick and mortar business and you need to make improvements to the space you are occupying, landlords and developers often provide “tenant improvement allowances” or TIAs for businesses to enhance the overall building. This is usually paid back in the form of additional rent or larger escalations in annual increases. This can be a good way to access capital for betterment and improvements. But sometimes, the escalations exceed the business’s ability to pay.

Wholesalers, Suppliers, Purveyors 

Cada vez que un comerciante / proveedor le extiende los términos para pagar sus suministros, está recibiendo un préstamo de facto. Esto le permite pagar por los bienes después de haber tenido la oportunidad de venderlos a una tasa marcada. También ha habido casos en que los proveedores primarios han hecho préstamos directos o inversiones en pequeñas y medianas empresas que son importantes para su negocio.

Government Business Development Agencies 

Many state and local economic development agencies offer loan programs and grants. These opportunities are often very specific in their requirements, including formal financial statements and reporting. Most have extremely favorable rates.

Ejecutando el Proceso

The search for financing should be run as an organized process. Your first decision should be to target the groups to which you should be submitting applications for financing.  In this process of elimination, the lenders will decide to approve or decline your application. You then must decide to accept an approved offer or continue to shop – or if declined, where to apply next.

Reasons for funding rejection

While each lender or equity investor assesses applications differently, there are numerous reasons why an application for funding is rejected. Below are a few key reasons:

  • Mala calidad crediticia de los propietarios y / o negocios.
  • Estados financieros mal preparados o inexactos
  • La industria es un riesgo de crédito pobre
  • Geografía / Región tiene Desafíos Económicos
  • Documentación insuficiente o inconsistente
  • Flujo de efectivo negativo / ventas insuficientes
  • Gravámenes fiscales y juicios
  • Información negativa no divulgada sobre el negocio o los directores
  • Estacionalidad de negocios / ventas inestabilidad

 It can best to aim high and hope for approval, then work your way down the waterfall. It may be labor intensive, but could provide you with lower cost, longer term and more favorable options. Your goal is to find the best deal you can, but be realistic and objective

Combining a number of approved options into a blended structure can give you a better cost structure. Smaller but lower cost personal or commercial loans can be supplemented with higher cost cash advances and equipment leases. This can give a blended rate that is much lower than the more expensive products.

Do your homework and be realistic in your expectations. Take the application process seriously and be as meticulous as you can, so you can get the best funding for your small business.


Empiece hoy

Vamos a conseguirle la financiación que necesita para hacer crecer su negocio. Ya sea que esté buscando expandir, comprar equipos, cumplir un pedido o estabilizar su flujo de efectivo, podemos obtener el tipo de financiamiento adecuado para sus necesidades. Si aún no está seguro de qué tipo de financiamiento es el adecuado para usted, puede utilizar nuestro herramienta de emparejamiento o llámenos al (800) 780-7133 hablar con uno de nuestros especialistas en financiamiento.

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