Small Business Lending

What Should You Do Before You Apply for a Small Business Loan

1. Determine how much funding you need. Examine your business expenses and consider how much of a loan payment you can afford. You can find out how large of a loan your business can afford by calculating you Debt Service Coverage Ratio.

The formula is a simple one: net operating income / total annual debit payments = DSCR.

Lenders are looking for small businesses to have a minimum of a 1.20 ratio. This means your cash flow is 1.2x your monthly loan payment. Remember, 1.2 is a minimum target so the higher the multiple the better. For example, if your annual net operating income is $135,000 and your total debt is $100,000, your DSCR is 1.35.

2. Check your credit report. Your personal credit report is a crucial part of the small business loan application process, as lenders often consider your personal credit, especially with startup business loans.

Carefully review your credit report so that it's free of errors and identify and resolve problem areas.  Inaccuracies on your credit report can hurt your chances of getting a loan approved and may negatively impact your score. It's important to try and clear these up before beginning an application process. You can order a free credit report each year from all three credit bureaus on annualcreditreport.com. A personal credit score on the FICO scoring system ranges from 300 to 850.

3. Draft a strong business plan. A solid, comprehensive business plan is the foundation of your small business and shows potential lenders how profitable your venture is.

A business plan includes:

• A summary, which provides an overview of your plan.
• The primary products and/or services your business will offer.
• You and the management team's skills and backgrounds, and how they relate to the success of your business.
• Who your target customers, market, and competition are.
• Your sales and marketing plans.
• The organization and management team, which includes the setup and responsibilities.
• Financials, such as the estimated cost to start or grow the business, a breakdown of ongoing expenses, and what the funds would be used for.
• Projections, which include projected income and balance sheets for the first few years.
• An Appendix, which provides supporting documents for your business plan.

4. Talk to a business mentor. A business mentor can help you tighten up your business plan, connect with resources, and more. You can find a business mentor through professional associations, former employers, or networking mixers. A couple of other options are, the Small Business Development Center (SBDC), whose mission is to promote entrepreneurship and small business growth through offices that are hosted by local organizations and funded in part by the government and the other is Score, which is a nonprofit group with volunteer business counselors throughout the U.S.

5. Connect with Croghan's Small Business Lending Expert. We take a consultative approach to understand the need for access to capital and work hard to identify solutions for credit. There are many lending products out there for financing and some, like the SBA Loan Guaranty Programs, require less money down so you can keep as much cash in the business as possible. Most small business owners are busy working "in" their business rather than "on" their business. We would like the opportunity to help you work "on" your business. Please contact us today to start the conversation.

Small Business Loans and Grants for Women

Women are a core pillar in business, but in far too many cases women face inordinate challenges and find themselves behind their male counterparts based on several measures when it comes to business ownership and incomes.

Business owners already struggle to qualify for business loans and other forms of financing as they try to build business credit and build their businesses, and women business owners more so.

There are grants available that are doing something to solve that problem. If you are a woman looking to start or grow a business, these small business grants for women may be just what you need to get to the next level.

Basic Small Business Loan Requirements

As a small business owner, you may require a loan to cultivate business growth for your business to thrive and prosper. But, navigating yourself through the business loan process can be daunting and difficult. First, you need to understand the requirements in obtaining a small business loan, then you need to find a solution that conforms to your needs.

Wise business owners explore the requirements and terms of the lending options available. And there are several different types of small business loan products to choose from. Each loan product will have its own set of qualifying criteria, payment schedules, risks, and benefits. Croghan's Small Business Lending Expert can talk to you about your options, as some may be a better choice for your unique business than others.

What is required?

Bank Loan Requirements:

• Historical business results (3 years tax returns and YTD income statement, balance sheet, and aging reports)
• Detailed business plan
• Current business debit schedule
• Income tax returns for all business owners with >20% ownership in the business (include K-1 statements for unrelated businesses)
• Current personal financial statements for all business owners with >20% ownership

Small Business Administration Loan

The Small Business Administration (SBA) is a government agency that works with lenders to provide loans to small businesses. The agency doesn't lend money directly to small business owners. Instead, it partners with lenders, like Croghan, and community development organizations to provide loan guarantees for small business loans to reduce the risk for lenders, making it easier for small businesses to access capital. Some of the loan guaranty programs that the SBA provides are the general-purpose 7(a) and 504 loan programs.

SBA Loan Requirements:

• You will need good, solid credit and some collateral.
• Time to process and give approval. You may wait up to 90 days or more to get your loan.
• Your resume, to look at your managerial and business experience.
• They require a very detailed overall business plan that includes your past, present, and future plans.

Resources for Black Business Owners and Entrepreneurs 

Starting your own business is a challenging but exciting and rewarding achievement. Entrepreneurs face a variety of obstacles when starting a new venture, from obtaining financing, hiring a team, marketing their product or service, keeping up with competitors, and so much more. For some Black entrepreneurs and business owners, these challenges can be even harder to overcome.

A study by Guidant Financial found out of all the challenges Black entrepreneurs face, one of the most prevalent is lack of funding. For most entrepreneurs, regardless of race, obtaining financing is often the greatest challenge to getting their business up and running. Many entrepreneurs first look to family and other social connections to raise funding. For many Black entrepreneurs, the racial wealth gap means we almost inevitably start with less capital.

It's worth the effort to overcome these challenges for those who want to become their own boss and/or pursue their passion. The good news is, there are a variety of resources specifically set up to help Black entrepreneurs and business owners push beyond obstacles and achieve their dreams and goals. Take a look at some of these local and national resources.

Minority Business Development Agency (MBDA)

MBDA is an agency of the U.S. Department of Commerce that promotes minority-owned business growth by linking minority-owned businesses with the capital, contracts, and markets they need to grow.

They also serve as subject matter experts and advocates for the minority business community by providing free educational content and loan and grant opportunities, including a loan opportunity specifically for Black women business owners.

National Minority Supplier Development Council (NMSDC)

NMSDC’s mission is to connect minority-owned organizations, big and small, with a vast network of corporate members who wish to buy products, services, and solutions from minority-owned businesses. The corporate membership includes the largest public and privately-owned companies and healthcare companies, colleges, and universities.

NMSDC also helps businesses complete the minority business enterprise (MBE) certification process often needed to obtain other minority-owned business benefits.

U.S. Small Business Administration (SBA)

While the SBA services all U.S. small businesses, it's 8(a) Business Development program specifically sets out to assist minority-owned businesses, including Black-owned businesses, by providing revenue generation opportunities through government contracting. To qualify for the program, you must first certify your business is an 8(a) business, which you can complete on the SBA website.

Look Beyond Funding

One commonality among the Black entrepreneurs and business owners I’ve seen succeed is an unwavering focus on marketing their business and networking with everyone who is an ally. Funding is an important factor in getting your business up and running, and maintaining capital is important in ensuring your business continues to succeed, but often overlooked is the importance of networking with members outside the community to expand our reach.

Our community is a good place to establish connections and resources through all stages; however, continue connecting with those outside the Black community and expand relationships outside your typical market. Remember, a resource may not always be funding. A resource can be a mentor or an advocate willing to promote your product, service, or brand.

The Bottom Line

All entrepreneurs share a lifelong dream of starting and growing a business. Unfortunately, Black entrepreneurs and business owners still face an unfair struggle in some areas. Thankfully, federal and local programs are available to help provide educational tools, funding resources, and network-building opportunities.

According to the U.S. Census Bureau’s latest figures, the number of Black-owned businesses is on the rise. As long as we are provided support and opportunities, our businesses will flourish, and in turn, our communities will thrive.

When you’re ready to take the leap toward owning your own business, or you’re ready to grow your existing business, know you have educational tools, funding resources, and network-building opportunities to help achieve your dream.