Get your small business house in order

As National Small Business Week begins, Pensacola area bankers offer advice for getting your dream off the ground

Photo credit: Shannon Nickinson

Like most areas of the country, Pensacola’s residential housing market was battered and bruised by the Great Recession.

Although still in recovery mode, the housing market has bounced back.

But housing’s first cousin, small business, has been struggling to regain its moxie.

One reason: small business loans, especially for start-up companies, have been a continuing challenge for entrepreneurs.

“Start-up ventures are always probably the most challenging kind of small business loan, because normally the collateral is just not there,” said Blaise Adams, city president of Centennial Bank.

“We have strict guidelines mandated as far as loans to small business ventures,” Adams continued. “So we advise people to bring in an equity partner to make the deal work.”

Adams said that’s always a challenge for would-be entrepreneurs “because most don’t want to give anything up.

“But if you have to give up equity to make a deal happen, and get a loan, then partnering with someone makes sense,” Adams said.

So, with Monday marking the first day of National Small Business Week, what are some of the tips the experts recommend to existing small business owners who need a loan to grow, and entrepreneurs who want to start a small business?

Jim Salmon, vice president of Business Services for Navy Federal Credit Union, said there is plenty of money available for small business — and plenty of hoops to jump through to get it.

The biggest problem, Salmon said, is that potential entrepreneurs “don’t have their financial houses in order when they apply for a loan.”

Would-be borrowers often come to banks and lending institutions with good ideas, a solid business plan, but also come bearing the scars of the recession: i.e. poor credit, a history of overdue loan payments, and low net-worth.

Despite those drawbacks, Salmon said there is a process that leads to success in obtaining a small business loan.

Here are his keys to success:

— Have hands-on experience in the business or industry in which you want to start.

— Have a clear-cut, reasonable and obtainable business plan in place.

— Know the strengths and weaknesses of the marketplace you want to enter.

— Know who your competitors are and, if possible, their market share.

— Have a sound understanding of how long it will take to be successful.

— Have ample capital reserves to launch your company, and to get through the rough patches during the start-up phase.

— Do not apply for a small business loan if you’re delinquent on personal loans or mortgages. You very likely will not make it to first base with the bank.

— In addition to having work experience in the market sector you’re entering, you should have some of your own capital invested in the business.

“No one is going to finance your endeavor at 100 percent,” Salmon said.

As daunting as getting a business loan may seem, both Adams and Salmon said the economic environment for small business start-ups is becoming more attractive by the month.

What’s more, interest rates remain at historic lows, and there is plenty of loan money for the asking.

“The landscape today, versus five years ago, has improved dramatically,” Adams said. “Borrowing is relatively cheap, and the economy and real estate market continue to improve. Today people are more optimistic, and tend to feel more comfortable about borrowing under these circumstances,” Adams said.