Category Archives: Articles

Professional Equity

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Paul Goblet, Financial Advisor, NMSBIC

Paul Goblet, Financial Advisor, NMSBIC

The best source of business capital often comes from friends or family. They know you, they like you, and they trust you enough to provide equity for – and receive part ownership in – your firm. But sometimes a company enjoys greater success than its ability to finance its own growth via family and friends. That’s when you need to go to an outsider for additional equity.

The availability of private equity capital has changed fairly dramatically over the last five years. The common complaint was that you had to go to California or New York to get equity.   But thanks to the New Mexico State Investment Council, several funds have now started and are headquartered in New Mexico, and there are now fifteen to twenty funds with offices in the state. While we may not have a huge track record of companies attracting equity, the number of funds and investments in local businesses has consistently grown since 2001. Most of these funds target technology and most of the investments have been made in technology-related companies.

The process of obtaining equity capital can seem daunting. Without knowing the investors, you may find it difficult to trust them. The dollar value you place on your company may be different than the amount the investors believe it’s worth. You also may be afraid they will take over your company, leaving you with little control.
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When a Loan Is Not the Right Answer

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Paul Goblet, Financial Advisor, NMSBIC

Paul Goblet, Financial Advisor, NMSBIC

Throughout this series of articles we have addressed preparations for obtaining a business loan, whether from a traditional bank or an alternative lender like The Loan Fund. While paying cash is often the best option for covering the expansion needs of your business, sometimes – like when you are looking to buy new, very expensive equipment or to double the size of your plant – paying cash may not be an option.

Both of these examples include the purchase of hard assets and banks will often lend a large portion – 70 to 80 percent – of the purchase price. But non-collateral needs such as working capital to hire more salespeople, often can’t be met by traditional lenders.

The key word is successful. It is extremely hard to get anyone, even your Uncle Louie, to lend you money, let alone invest equity in a business if it is not profitable. If your business has lost money for the last two years, if you are struggling to meet payroll, if you have little or no backlog of orders, or if your product or service is just ordinary, the chances of attracting any kind of capital becomes more difficult. Lenders and equity investors want to do business with someone who has been or will be successful.
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The Business Plan: Your Guide to Success

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J. Roy Miller, State Director, NMSBDC

J. Roy Miller, State Director, NMSBDC

Imagine you are starting a trip. Where are you going? How will you get there? A plan helps you chart the best course, ensures that you follow your route, alerts you to important landmarks and reminds you of your schedule and budget.

You wouldn’t embark on a trip without a plan so why would you start a business without one? Studies have shown that the failure rate of start-ups without business plans is three times higher than that of businesses whose owners prepared a plan.

A business plan provides you with the analysis needed to decide whether it is in your financial interest to go into the business. If you decide to continue exploring the idea, this analysis is critical to obtaining the main thing that fuels the business world: capital. A plan helps the prospective investor – be it your banker or brother-in-law – determine the merits of the “deal.”

Plans can be as short as one page or as long as one hundred; most are between twenty-five and fifty pages in length. Whatever length and style is suitable for you, your plan should, at a minimum, contain the following information:
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Critical Elements of a Loan Application

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Leslie Hoffman, Director of Lending, ACCION New Mexico

Leslie Hoffman, Director of Lending, ACCION New Mexico

Sheep ranchers Jerry and Lyn Brown of La Plata, N.M., were looking for resources to help take their small business to the next level.  The sheep herd represented more than a livelihood for the Browns; it was the one remaining asset the family turned to as a lifeline after Jerry was hurt on a construction job and then nearly killed in a random shooting. The Brown’s finances had suffered because of medical bills, but their commitment to their sheep ranch was clear.

The Browns turned to ACCIÓN New Mexico, a non-profit lender, for a $2,500 loan.  In spite of their financial challenges, the Browns were able to obtain financing because they scored well on the critical elements of a loan application.

ACCIÓN is a nontraditional lender that increases access to business credit, makes loans, and provides training which enable entrepreneurs to realize their dreams and be catalysts for positive economic and social change. Our lending considerations go beyond numbers. We seek hardworking and pioneering small business owners and emerging entrepreneurs.  We support their passion to succeed, learn, and make the right financial and business choices.
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Micro Loans: When Your Business Needs a Little Boost

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Kim Blueher, Director of Lending, WESST Corp.

Kim Blueher, Director of Lending, WESST Corp.

A few years ago a massage therapist came to WESST Corp. because she wanted to open a small office. She had a business plan and some excellent marketing ideas but not much else. She needed a small amount of money to purchase office furniture and equipment to set up her practice. What she needed was a micro loan – a small business loan to help get her business off the ground.

The massage therapist received her loan under the condition that she meet with one of our marketing consultants to help refine her ideas. She began taking classes, including a multi-week class called Marketlink that focuses on delivering a product or service to the marketplace. It wasn’t long before her sales skyrocketed from a few hundred dollars a month to a couple thousand per month. Recently she returned for another loan, this time so she could move the business to a larger location and hire other therapists.

Both the original start-up loan and the subsequent loan for expansion are typical of micro loans. Helpful when the funding needs of a business are small, micro loans range from as low as $200 to as high as $50,000.   Loans of this size are often difficult to find – applicants sometimes lack collateral, have suffered credit problems, or have no business experience.   If the business is new, banks may view the enterprise as risky. Those who have had credit problems such as bankruptcy or late payments will also have a hard time qualifying for a traditional loan. Micro loans are designed for all of these situations.
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Avoid the Financial Danger Zone

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Leslie Hoffman, Director of Lending, ACCION New Mexico

Leslie Hoffman, Director of Lending, ACCION New Mexico

Credit can be an important financial tool, especially for people who are trying to start or grow a small business. Credit can be used to buy inventory, finance the start-up of a business, or make purchases for large-ticket items like equipment or office space.

But like all tools, performance must support cost. Credit is not extra income — it is money that must be paid back. If it’s not managed well, it can become overwhelming and can prevent you from reaching your financial goals.

When your level of debt outpaces your ability to pay for it, you are in the financial danger zone. You are much less likely to qualify for additional credit and you need to take steps toward better financial health.

One tool lenders use to determine if you’re in the financial danger zone is a mathematical expression of the relationship between your debt level and your income. It’s called debt-to-income ratio and it is calculated by dividing your total monthly debt payments by your total monthly net income – or your take-home pay after taxes and other deductions. Generally, a debt-to-income percentage that exceeds 20 percent is a sign you need to take care of your current obligations before taking on any more debt.
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Take Control of Your Credit

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Leslie Hoffman, Director of Lending, ACCION New Mexico

Leslie Hoffman, Director of Lending, ACCION New Mexico

Ever tried to borrow money from a bank? What about applying for a credit card?  Have your ever financed the purchase of a car? The banker, credit card company or car dealer probably asked about your credit history.

For some, it’s an intimidating question, but it doesn’t have to be.  You can take control of your credit if you understand what it is and what it can do for you.

Credit is the ability to borrow money to pay for things.  Good credit means you make loan payments on time and pay off your debts when they are due.  Poor credit means you miss payments, don’t meet pay-off deadlines or have too much debt.

Credit can be useful in emergencies if you need money quickly. It can also allow you to make larger purchases when you don’t want to pay the full amount at one time. For entrepreneurs, it can be a critical element in the growth or start-up of a business.

Financial institutions verify your credit through a credit report that reflects how you have handled your debts.  There are three national agencies that produce credit reports – Equifax, Experian and Transunion – and all include similar information in their reports.
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Getting a Loan Officer to Say Yes

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Kim T. Blueher, Director of Lending, WESST Corp.

Kim T. Blueher, Director of Lending, WESST Corp.

Asking for money is something no one likes to do.   Asking to borrow money can be just as difficult.  The outcome will depend on how prepared you are.

First, research the different loan programs available throughout New Mexico. It would be a waste of time to apply for a loan that doesn’t fit the requirements of your business. Conversely, it would be a shame to miss out on a loan program that is perfect for your company because you aren’t aware of it.

Make sure you understand words you may not normally use – words like assets, liability, net worth, gross or net profit, collateral, receivables, payables, amortize and depreciate. Having a working knowledge of these terms lets the lender know that you understand the financial part of your business.

Obtain your credit report. This document is one of the most important criteria that lenders evaluate when they are considering a loan request. It is essential that you look at your own report at least once a year to make sure that the information is correct. You can also learn your credit score, which indicates how well you have paid your debts. Many lenders will not approve a loan if the credit score is too low.
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Business Financing: Your Idea Is Just the Beginning

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F. Leroy Pacheco, Executive Director, The Loan Fund

F. Leroy Pacheco, Executive Director, The Loan Fund

People often ask, “What do I really need to get a loan?”

They have reviewed the various bank programs, surfed the Internet, talked to friends and attended seminars. They may be drowning in information but they are still unclear about what to do next. How, exactly, does one go about getting financing, without having to sign over the rights to a house, a car, or as the joke goes – a firstborn child?

It all starts with an idea. But it’s the planning associated with turning that idea into a viable business that is the most important factor and one of the keys to whether or not a loan will be awarded.

Before you talk to a banker, a venture capitalist or an alternative lending group such as The Loan Fund, you need to do some thinking.  Don’t worry about doing a full-blown business plan – yet. Ask yourself these seven questions. We will certainly ask them if you call us about a loan.

Is your idea a good one? You love it, but will anybody else?  Why would someone who doesn’t know you buy your product or service?

How are you going to reach your target customers? We often see plans that include “advertising” as the sole marketing tactic. There’s a lot more to marketing than advertising.
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Preparation Is the Key to Getting a Business Loan

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Paul F. Goblet, Investment Advisor, NMSBIC

Paul F. Goblet, Investment Advisor, NMSBIC

Unlike securing a consumer loan for a home or car, getting a business loan can be difficult. Consumer loans have become readily available, and often a borrower can be pre-approved based on his or her credit score.

A business loan, on the other hand, demands far more documentation, takes longer to close, and is often based on both the historical success of the business and the personal financial strength of the owner.

There are many reasons for this. Valuing a business is not as simple as having an appraisal on a home because there are fewer comparisons – not many businesses are exactly like yours. Nor can the business be sold as quickly as a home or car.

The New Mexico Small Business Investment Corporation (NMSBIC) tries to make the process of obtaining a business loan easier. Through its financial partners, like ACCION New Mexico, WESST Corp. or The Loan Fund, we have provided funding for over 1,300 business loans throughout the state. While each financial partner has their own credit approval process and each requires different documentation, these partners are accustomed to working with small businesses that might otherwise have trouble securing a loan from a traditional bank.
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