Asking a bank to spare a dime—or more—continues to be a difficult process for businesses. But as three examples of business lending show, if you can bring property to the table and show you have a solid business plan and sound fiscal accountability, there’s a better chance to make a deal.
Equipped to Move Forward
Morton’s Gourmet Market
The situation: The display cases at Morton’s Gourmet Market are essential equipment, showing off its baked goods, meat, seafood and other items. But that equipment, as well as reach-in freezers and refrigerated dairy cases, has been restocked and used by workers and customers daily since 1999, when the Sarasota store was remodeled. Morton’s needed new fixtures, as well as the funding to purchase them.
“It’s always a challenge. Money is always available somewhere, but sometimes it’s available for more than you want to pay,” says Eddie Morton, who co-owns the market with his son, Todd.
It helped to have a prior relationship with a local bank. Insignia Bank provided the funding when Morton, whose dad purchased the grocery store in 1969 and sold it in 1997, bought the market back in 2007. Back then, “Everybody was very leery to give us any kind of commitment,” he says. This spring, he shopped around for the loan to fund the equipment purchase and found some banks were only willing to provide partial funding, such as 80 percent.
With Insignia, there were no challenges. “I just sat down and told them what I wanted. I laid out what we were purchasing. I left it in their ballpark,” he says.
The new equipment would give the store a fresh look, which is appealing to customers, and is expected to save money on utility costs and cut down on waste. Morton also expects to take advantage of government-funded tax credits available for businesses making improvements.
Insignia provided a seven-year, fixed-rate loan (Morton declined to provide the loan amount), and he expected to install all the new equipment this month.
The right steps: Insignia already had knowledge of his business’s financial picture. “They see our financials every year anyway because we carry a line of credit with them, even if we don’t use it. They know what kind of business we’re doing, and they know what progress we’ve made,” Morton says.
Businesses should be prepared to open up their personal and professional books. Charles G. Brown III, chairman & CEO of Insignia Bank, says banks want at least two to three years of tax returns, as well as a balance sheet and income statement.
Morton says he believes the longevity of his business was an asset as he sought the new loan. “The banks are leery of loaning to start-up businesses and people who don’t have a track record,” he says.
Setting Up Shop
2nd Ann Rose
The situation: It’s true. Starts-up are the most difficult to fund because inexperienced entrepreneurs often lack a business plan with financial projections or cash to put into the business. But Barbara Smith worked with Achieva Credit Union for a U.S. Small Business Association (SBA) loan to start up 2nd Ann Rose Consignment Boutique in Lakewood Ranch in 2011. She needed a loan for $200,000 to buy an office condo, build it out and buy fixtures and equipment. “We bought our unit. That’s what we needed the money for. We started the store to help my daughters and leave them something,” she says.
The right steps: Her 38 years of industry experience included working in a consignment shop for 10 years, says Tammy Youst, Achieva’s vice president/business and SBA lending manager, who helped Smith create a solid business plan that included five years of financial projections.
“I had no idea the time you had to put into it,” Smith says. “I’ve always done, in the past, business projections, but nothing to the extent of what you had to put together for them. Don’t cheat on the figures. If you’re going to project this five-year plan, you want to be right on target.”
She projected $145,000 in first-year revenue, which she says she is on track to surpass.
She met other SBA loan requirements, which included having a strong credit score; being an owner-operated business; and being able to put at least 10 percent down (she invested $30,000 in the business). Smith also was current on her home mortgage and credit card payments. Youst adds that she was buying real estate in a strong location. Now Smith is looking at buying an adjacent unit and expanding to offer items including children’s clothing and high-end furniture.
Patience and Perseverance
The situation: Back in 2007, restaurateur Paul Mattison, who had been leasing a building on Longboat Key, desired more space and a better location to expand his catering business. He found a 10,000-square-foot former Lone Star Steakhouse building on U.S. 41 that he thought would be perfect for his new restaurant, Mattison’s Forty-One.
At the time, he didn’t realize how long and complicated the process would be.
Mattison was approved for a nearly $3.5 million loan through the SBA’s 504 Loan program, which provides long-term, fixed-rate financing to acquire fixed assets to expand or modernize a business. Under the program, a nonprofit Certified Development Company works with the SBA and a lender to provide financing (the CDC typically provides up to 40 percent, the lender up to 50 percent, and the borrower provides 10 percent).
He got the loan, but the bank went out of business and sold his loan—which covered the cost of the property and some of the build-out—to a bank in Texas. He didn’t hear from the new bank for years, and during that time, he was forced to pay about $1 million out of pocket to complete construction. He hired an attorney to negotiate a buyout of the loan at a reduced rate, so that he could work with a local bank and get a better interest rate.
Mattison ended up working with Fifth Third Bank last fall on a 20-year fixed loan. “We literally had him an approval in less than two weeks,” says Donna Stiens, vice president of business banking. “This was the fastest loan that we did from start to finish. We were within 60 to 90 days from the time we had a first conversation to funding the loan.”
The right steps: Mattison had current tax returns and other financial information in order and handed it over to the bank quickly, Stiens says. Mattison also could show experience in the industry and Sarasota market, positive cash flow, and good volume and growth in his locations and the catering business.
“Everybody got hurt hard with the economy. We hunkered down and kept our costs under control,” Mattison says. “Our bottom line was still strong and positive.”
Mattison also allowed the bank to work directly with his accountant, attorney and others in his inner circle, Stiens says. “We didn’t have to wait for him. We got the green light to go to other parties involved and get whatever we needed to get done.”
And since he had a good understanding of his business’s financial situation, he proved to the bank he was fiscally responsible. “We watch our accounting day and in day out,” says Mattison.
He believes having a piece of property also helped him find a bank willing to take over his loan. “[For] any business, it’s hard to obtain financing, but when there’s real estate tied to it, I think it makes it more appealing and attractive to banks. There is something there they can fall back on,” Mattison says.
Smart Steps to Secure Funding
Develop a business plan
Resources such as SCORE and the Small Business Development Center at State College of Florida Manatee-Sarasota offer free assistance and workshops about business plans and other topics.
Share up-to-date financials
Banks need accurate, current information about your personal and company finances, and don’t make them wait. Make sure your financial house is in order, says Donna Stiens of Fifth Third Bank. She adds: “If you are still waiting for 2011 tax returns because you filed an extension and you can’t tell me where you are today, I’m not real comfortable with you.”
Know projected sales and expenses
Financial projections—preferably for at least three years—give the bank an indicator of whether you know your market and competition, if you are a start-up, or are on top of your business’s financial situation, in the case of an existing business. You need to have a complete understanding of your business, industry and market demographics, Achieva’s Tammy Youst says.
Show a strong credit score
Pull your credit score before you apply for a business loan to make sure you don’t need to clean up your credit before approaching the bank.
Make a case for your new location
If you have been in a location and want to buy a piece of real estate, make sure the move will not affect your current success, says Youst. For example, if a restaurant moves even five miles away, there is the potential to gain new customers, but loyal customers may not move with you. “It might be shinier and prettier, but have you done a census and talked to existing customers and asked, ‘What do you think?’” Youst asks.