The old phrase "if it looks too good to be true, it probably is" applies to many situations, including small-business financing. Do you want to start a business? If you own a business, is now a good time to expand? Many businesses are doing well right now. The economy shows modest improvement during most quarters. Consumer spending is up, but wages are sluggish.
Given all this, you need to look further into the future than quarterly economic reports. Do you have a vision for what your business can be in five, 10, or 15 years? Or, if you do not own a business, what kind of business would you want to start? And what are your goals for it?
If this is the right moment for you, professionally and personally, you must make several decisions. One of the most important is, How do I finance my vision?"
The best move is a talk with a trusted local banker. But most of us can’t resist checking the Internet first. The "Google" influence can be too powerful to resist. It also may cloud your judgment. If you write “business financing” in a search engine, the first four clicks to pop up are likely to be commercial online lenders such as; National Funding, United Capital Source, Kabbage and Snapcap. Same if you put in "SBA 504 loans in Indiana," you may get Lendio, Lending Tree, Whista and several others.
A list of credible lenders, "Indiana certified development corporations," also may show up on the first page. These are companies certified by the U.S. Small Business Administration.
Here’s where it may be too good to be true: Some online lenders promise "zero dollars down." Good deal, right? But look deeper. High, hidden fees may vastly inflate costs. "Zero dollars down" may evaporate like morning fog on a hot day. Another thing; online lenders usually do not have a visible location or a solid reputation in a business owner’s local community.
So, after sitting down and figuring out needs, market and resources, your first step should be to a local commercial lender, and that’s probably a banker. Then, let’s say your project deserves funding but falls outside the bank’s lending guidelines. Don’t give up! If the bank needs help financing your project, your banker may suggest an “alternative” loan and walk you through the process with a credible local lender such as a company with SBA certification.
By the way, of course a lender should say "no" when a potential borrower is about to step out of its league – either financially or in terms of expertise and experience. But most lenders in Indiana want to support solid business plans by deserving borrowers. Their in-house loan approval systems will include conventional loans and loans assisted by outside sources such as the SBA. New startups and the growth of Indiana’s high-tech businesses are positive signs that Indiana lenders are fully embracing the challenge to grow our local economies.
In the last 35 years, our company has partnered with local Indiana banks to loan more than $1.25 billion to Indiana companies. Most started with a vision. Examples; a manufacturer of air conditioning equipment saw the opportunity to reach a national market, a non-profit worker turned his experience growing up on a farm into an urban landscaping business, and an employee of a small-town machining company was buying the firm from its founding family. These owners — and more than 1,200 others we’ve worked with, needed alternative financing to make their visions come true. (Almost no one starts with enough cash reserves to pay out-of-pocket.)
So, as a business owner, don’t be swayed by a “zero down” promise from a lender you don’t know and who doesn’t know you. Even if you can’t qualify for conventional financing, a banker may help you find a solid alternative loan program that modifies the bank’s risk and offers a rate and down payment you can afford.
Jean Wojtowicz is president of Cambridge Capital Management Corp.