SBA Loans: Was it Worth the Pain?

September 1, 2010 in SBA lending, SBA loan, access to capital, small business funding, small business lending | by schesnutt | Leave a comment

In the first two installments, Dave Price, of Bennett Design and Landscape, walked us through both his failure and his success securing an SBA loan.  Four months after beginning the application process for an SBA Disaster Assistance loan, his binder was five inches thick and he was weary from the effort.  As we conclude our talk, Price candidly shares the surprises he encountered and has a few suggestions for us.

So the detail required in your application was a big surprise.  Were there any other surprises?
We had a HELOC on our home and used part of the SBA loan to pay it off – that was difficult to explain to the SBA!  Roll forward a year or so later, I was holding a contract to sell my house.  Surprise, the house was part of what secured the SBA loan.  We had to go back and work with the SBA to renegotiate the loan.  I also think at first we had a false sense of security since we didn’t have to pay loan back for 30 years.  The reality is you have to pay it all plus interest, so you better be doing a good job running your business now.   By the way, the hardscape division sucked money out of the company.  Within a year we had to close that division.                                             

Did you have to sign a personal guarantee on the loan?
We did have to sign personal guarantees.  The business gets so intertwined with your personal finances.  If the business goes under, I lose everything.    But the personal guarantee was not a surprise.  We have to sign personal guarantees all the time.  Look, we have to sign personal guarantees with John Deere Nursery to get a $30,000 line of credit to buy plants for our clients.

I have to ask you, In the end, was it worth all the work?
We successfully borrowed $100,000, consolidated all our lines of credit into a 30 year fixed rate a little over 3%.  That’s better than you could get anywhere else by far.  The drought lifted just as the economy fell apart.  Thank God we got the loan.  We can budget better and we can better manage cash flow because we have just one payment and the interest rate is fixed. We were able to survive.  

Who, based on your experience, is the ideal candidate for an SBA loan?
Someone who has something in their business that is going to give them an edge with the SBA, like being a woman-owned business.  Or for example, if you wanted to start a tax preparation business that served the Hispanic community, that was the kind of thing that seemed to appeal to the SBA.   Your industry association may be able to let you know if there are special SBA loans that you can qualify for.  One thing we learned, just because you have a great new innovative business idea doesn’t mean the SBA will be interested in loaning you money.  Their job isn’t to fund innovation. 

What advice would you give someone who is considering an SBA loan?
Run! Run, run, run!  No, seriously, no doubt about it we got a good interest rate. 

Dave Price started his landscaping design and architecture firm in Atlanta with a $100 investment.  Fourteen years and several local and national awards later, Bennett Design & Landscape’s designs have been featured in Southern Living and Atlanta Homes & Lifestyles. 

Sandra Chesnutt is a Marketing Director with Ftrans.  Ftrans combines professional receivables services with fast and affordable access to funding – providing small and medium businesses the cash they need to grow and take advantage of market opportunities.  Liberating you from funding challenges and receivables hassles.

SBA Loans: Why I walked over red hot coals for a good interest rate

August 24, 2010 in SBA lending, SBA loan, access to capital, small business funding, small business lending | by schesnutt | Leave a comment

I catch back up with Dave Price of Bennett Design & Landscape to get even more scoop on his first-hand experience landing an SBA loan. 

That’s not the end of the story though.  You tried again!  What was happening in your business that prompted you to again seek an SBA loan? 
Georgia was in the midst of a major, four-year drought and had been declared a state of emergency.  In our business, we were laying people off; all around us, other landscape businesses were shutting their doors.  It’s hard to sell landscaping when people are not allowed to water their lawns.  But we had cash and we had the line of credit and we decided a good strategy for staying in business would be to bring our hardscape business, or stone work, in house instead of subbing it out.  We could keep the business going and we would also be able to control the quality over that part of our projects.  To get started, we knew we would need a large investment in massive trucks and saws and blade sharpeners to haul and cut stone.   Through our industry association we heard about an SBA disaster assistance loan program.  We knew of eight landscape businesses who had applied and seven had been approved.  It was worth a shot.

So this was a different type of SBA loan, an SBA Disaster Assistance loan, and you applied directly to the SBA not through a bank. 
Correct.  We were assigned two SBA staff who helped us apply, one of them took us from zero to completion of the application and the second was more of an underwriter.  Believe me, both of them were dry and serious.  Again, the questions the SBA wanted answered were very specific:  How was the loan going to change our business?  Why did we have one bad year in the middle of seven great years?  What specifically did we do to turn it around? How will not getting the loan hurt our business?  How will you maintain your business if you don’t get the loan?  All these questions had to be answered in detail.  I had to document how I was going to use every dollar.  As in, “I’m going to use $5,000 for this specific piece of equipment.” Our SBA guide suggested we include $15,000 to be maintained in a separate account to use for cash flow and I included that in my explanation of how I was going to use the money.  I had to prepare projections for the next five years, both with and without the loan.  At the end, our application binder was five inches thick.

What do you think was the true cost for this loan including hidden costs?  What did it cost you in time and money in addition to the interest you paid? 
We had to pay for a home appraisal and about $2,000 for a commercial appraisal.  The application fee was around $1,000.  The overwhelming expense was my time.  I would say I was involved for maybe an hour, maybe five hours a day, three days a week for more than four months.  I was constantly answering questions that required digging in the detail behind my P&Ls.  I had to take myself away from other duties to explain anything out of the ordinary, like why was Shop Supply Expense different this year compared to that year.  Once we started preparing the application, he would go over and over each response.  To gain approval, every response in the application had to be worded just right.

Compare that with how long it took us to get our $60,000 line of credit:  one week.

To come – Part 3: In the end, was it worth all the work?

Dave Price started his landscaping design and architecture firm in Atlanta with a $100 investment.  Fourteen years and several local and national awards later, Bennett Design & Landscape’s designs have been featured in Southern Living and Atlanta Homes & Lifestyles. 

Sandra Chesnutt is Marketing Director with Ftrans.  Ftrans helps small and medium sized businesses looking to accelerate and improve their cash flow by providing an AR line of credit combined with AR management tools for a cost effective way of liberating you from funding challenges and receivables hassles.

SBA loans: No Green for this Landscape Architecture Firm

August 2, 2010 in SBA 504, SBA lending, SBA loan, access to capital, lending, small business, small business funding | by schesnutt | Leave a comment

As part of our ongoing series on small business funding, I sat down with Dave Price, whose firm, Bennett Design and Landscape, is a nationally recognized landscape architecture firm and a fixture in the Atlanta landscape design scene.  He shared with me his personal observations and described his experience applying for an SBA loan.

Your story is a classic start-from-scratch American small business story.  Can you share a little bit about how you went from not having a business to a $5 million business with 13 employees a few years later?

My partner and I both had full time jobs.  He was a landscape architect and we thought why not make some money on the side designing and installing small landscape projects for homeowners?  We soon realized that once we earned our customer’s trust on the small jobs it quickly went to, “I need a new driveway or retaining wall.”  Within a year we thought we had enough business for one of us full time and a small office in the basement.  A year and a half later we had an office manager, and a couple of employees and we were both working in the business full time. 

Whenever owners of small or start-up businesses ask around about financing they are often advised to look into an SBA loan.  When you started thinking about getting an SBA loan, how did you research the process and how did you get started? 

Around that time we already had a $60,000 working capital line of credit and an additional $15,000 line of credit secured by our building, plus a HELOC on my home.  We knew nothing about SBA loans.  We already had depository and lending relationships with a couple of Tier 1 banks so we started there.  They explained the process to us, looked at our P&Ls and Balance Sheet and gave us packets outlining the process step-by-step.

With your existing lines of credit, you had already been through the underwriting process before. What was different about applying for an SBA loan?

The level of paperwork involved.   We learned it wasn’t just a lot of paperwork for us; it was a lot of paperwork for the bank too.  We also had a misconception.  We thought, here was the SBA with a pile of government money to help small businesses to grow the economy.  We found out that the banks are really lending their own money and the government was just acting more like the FDIC, as a back up.

The bank was much pickier than for a standard line of credit.  The SBA wanted to know specifically how you were going to use the money and how it was going to impact your business.   In the end, both banks told us this is going to be a mess.  It’s going take a lot of your time and your chances of getting approved for the loan are maybe 30%. We were bankable but weren’t nicely fitting into the criteria.  They explained that we were not a minority or female owned business.  We weren’t doing work for the government. 

To come – Part 2:  That’s not the end of the story though.  You tried again! 

This post is part of a series on funding small and medium sized businesses; first-hand accounts from people who have been through it from knocking down SBA loan hurtles, to how venture capitalists and private equity partners think, to what’s new in getting an old school line of credit. 

Dave Price started his landscaping design and architecture firm in Atlanta with a $100 investment.  Fourteen years and several local and national awards later, Bennett Design & Landscape’s designs have been featured in Southern Living and Atlanta Homes & Lifestyles. 

Sandra Chesnutt is a Marketing Senior Manager with Ftrans.  Ftrans combines outsourced accounts receivable management with fast and affordable access to funding – providing small and medium businesses the cash they need to grow and take advantage of market opportunities.

Small Business Loans – The Collateral Catch-22

July 22, 2010 in access to capital, credit crisis, credit scoring, lending, receivables, small business, small business funding, small business lending | by JimLesterIV | Leave a comment

For businesses seeking small business loans or working capital loans, the process may seem like a Catch-22, or no-win situation.     Generally, loans are secured by collateral such as accounts receivable, inventory, real estate, and other assets.  But, according to the Wall Street Journal’s article, Collateral Damage in Lending, the collapsing value of assets such as inventory and equipment is causing a collateral gap and resulting in many businesses falling short of loan eligibility.   Thus, these small businesses must still pledge the usual collateral, but, increasingly, small business lenders are requiring cash or other highly liquid assets as secondary sources of repayment.   The Catch-22 is that often these cash requirements are equal to the loan request amount.   As a result, small business owners find themselves asking, rhetorically, “If I have the cash, why do I need the loan?”  

Accounts receivable remain one of the most important assets of a company.  They are the primary generator of cash.  Tighten and reduce your cash conversion cycle by reducing your business’s accounts receivable days outstanding to generate more cash.   To do this, consider your business’s complete revenue cycle from customer acquisition to invoicing to payment receipt.  Is your business following accounts receivable best practices?  What is the propensity to pay and credit worthiness of your customers?   How does the business handle aging receivables?  

Companies such as Ftrans offer complete accounts relievable and credit management solutions that help businesses address cash and revenue cycle concerns.   Implementing these best practices enables accounts receivable funding for your business without a Catch-22.

Go Low With Your Cash Conversion Cycle

July 14, 2010 in access to capital, credit crisis, lending, receivables, small business, small business funding | by JimLesterIV | Leave a comment

As reported by the Wall Street Journal, small and medium size businesses continue to have limited access to credit.   According to Federal Reserve Chairman, Ben Bernanke,

“The formation and growth of small businesses depends critically on access to credit,” Mr. Bernanke said in the text of his remarks. “Unfortunately, those businesses report that credit conditions remain very difficult.”

Absent credit availability in the form of small business lending, businesses must actively manage their cash conversion cycle, which is the time it takes to convert a business’s cash consuming activities into cash payments.   In other words, businesses must manage to a low cash conversion cycle which means having cash tied up in business operations for as few days as possible.  Clearly, a shallow credit market highlights the importance of managing to a low cash conversion cycle as this may be one of the few ways for businesses to have the liquidity necessary to fund their operations.   

How do you manage your cash conversion cycle?   Focusing on revenues and expenses is important.   However, equally important, and perhaps more complex is developing a better understanding of your business’s working capital situation.   Analyze your accounts receivable and accounts payable outstanding days, including inventory, to understand how movements in each affect your cash conversion cycle.   Good cash cycle conversion management equates to better revenue cycle management which equates to an increase in the health of a company.   For more information on cash cycle conversion, click here.   Additionally, consider solutions from companies such as Ftrans which provide full accounts receivable management solutions.