{"id":4674,"date":"2013-03-25T12:52:01","date_gmt":"2013-03-25T18:52:01","guid":{"rendered":"http:\/\/financenewmexico.org\/?p=4674"},"modified":"2016-02-29T12:26:37","modified_gmt":"2016-02-29T19:26:37","slug":"know-the-landscape-before-requesting-a-small-business-loan","status":"publish","type":"post","link":"https:\/\/financenewmexico.org\/sandbox\/articles\/obtaining-a-loan\/know-the-landscape-before-requesting-a-small-business-loan\/","title":{"rendered":"Know the Landscape Before Requesting a Small Business Loan"},"content":{"rendered":"
\"Jordan<\/a>

Jordan van Rijn, NM Loan Officer, Accion New Mexico \u2219 Arizona \u2219 Colorado<\/p><\/div>\n

Many Americans long to see where their talents as inventors or craftsmen or cooks can take them. But businesses often struggle in their early years, and this makes some lenders wary of financing enterprises that don\u2019t have an established track record. After repeated rejections from potential funders, many entrepreneurs simply give up.<\/p>\n

Organizations like Accion are one option for the aspiring entrepreneur who can\u2019t secure a loan through a more traditional financial institution, such as a bank or credit union. But getting a loan requires some groundwork, no matter where she looks.<\/p>\n

<\/p>\n

The Five C\u2019s<\/strong><\/p>\n

Traditional lenders evaluate loan requests on the basis of the client\u2019s character, capital, collateral, capacity and conditions \u2013 the 5 C\u2019s of credit.<\/p>\n

The lender measures character by observing the client\u2019s punctuality, organization and understanding of the size and purpose of the loan. They listen to what references say and what his credit history demonstrates about his commitment to pay off debts. They review the business plan to see how well it reflects the client\u2019s experience, strategy and commitment.<\/p>\n

Existing capital is a plus for an aspiring entrepreneur and a way for the lender to assess the borrower\u2019s personal investment in the business.<\/p>\n

Collateral is what a business pledges to secure a loan. These assets are a secondary source of repayment if the borrower defaults on the debt. Real estate, equipment, machinery, vehicles and certificates of deposit are good collateral.<\/p>\n

Capacity measures the borrower\u2019s ability to assume new debt. Lenders weigh how much credit the client can draw on, how much debt she has and how her debts compare with her income. They make cash flow predictions to assure the business will have cash to pay bills when they\u2019re due.<\/p>\n

Lenders want to know how the client\u2019s business will weather economic conditions and what trends are driving its industry. They might be cautious underwriting a new video store, for example, if consumers increasingly prefer direct movie downloads.<\/p>\n

Where\u2019s the Money?<\/strong><\/p>\n

Entrepreneurs approach banks, credit unions and alternative investors for startup capital.\u00a0 And some entrepreneurs are using the internet to find backers for worthy causes or projects through crowdfunding. Under current economic conditions, banks and credit unions issue loans with interest rates between 5 and 12 percent. A credit union will typically lend to members only. Both banks and credit unions have strict requirements, and few lend money to startups.<\/p>\n

Government-backed U.S. Small Business Administration (SBA) loans are funded by banks that participate in SBA lending programs. \u00a0The SBA provides a loan guarantee of up to 80 percent of the principal, and the interest rate \u2013 which \u00a0is determined by the participating lender \u2013 is typically in the range of prime rate plus 3 to 4 percent. Current rates are about 6 to 7 percent. The SBA funds startups, but the application process may not be ideal for entrepreneurs with a short timeline within which to fill their capital needs.<\/p>\n

Alternative lenders like Accion, The Loan Fund and WESST offer flexibility, mentorship, quick turnaround and a willingness to support new ventures. Loan terms are often tailored to the use of the loan and the business\u2019s cash flow. While small and microloans may be offered, the loan ceiling is often lower than with banks.<\/p>\n

High-risk risk businesses that require substantial startup capital sometimes solicit money from private investors, but they usually must surrender a share in ownership, governance and profits.<\/p>\n

Getting Ready<\/strong><\/p>\n

Once an entrepreneur has considered her needs and options, she needs to get her 5 C\u2019s in order. The New Mexico Small Business Development Center network or SCORE counselors can help her write a business plan, or she can consult online resources, such as those found at financenewmexico.org.<\/p>\n

To learn more about Accion, visit accionnm.org<\/a>.<\/p>\n

Download\u00a0286_Know the Landscape Before Requesting a Small Business Loan<\/a>\u00a0PDF<\/p>\n","protected":false},"excerpt":{"rendered":"

Many Americans long to see where their talents as inventors or craftsmen or cooks can take them. But businesses often struggle in their early years, and this makes some lenders wary of financing enterprises that don\u2019t have an established track … Continue reading →<\/span><\/a><\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[6],"tags":[],"_links":{"self":[{"href":"https:\/\/financenewmexico.org\/sandbox\/wp-json\/wp\/v2\/posts\/4674"}],"collection":[{"href":"https:\/\/financenewmexico.org\/sandbox\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/financenewmexico.org\/sandbox\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/financenewmexico.org\/sandbox\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/financenewmexico.org\/sandbox\/wp-json\/wp\/v2\/comments?post=4674"}],"version-history":[{"count":10,"href":"https:\/\/financenewmexico.org\/sandbox\/wp-json\/wp\/v2\/posts\/4674\/revisions"}],"predecessor-version":[{"id":8440,"href":"https:\/\/financenewmexico.org\/sandbox\/wp-json\/wp\/v2\/posts\/4674\/revisions\/8440"}],"wp:attachment":[{"href":"https:\/\/financenewmexico.org\/sandbox\/wp-json\/wp\/v2\/media?parent=4674"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/financenewmexico.org\/sandbox\/wp-json\/wp\/v2\/categories?post=4674"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/financenewmexico.org\/sandbox\/wp-json\/wp\/v2\/tags?post=4674"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}