Smallbizlady: What would you say are the biggest challenges small businesses face today with credit & financing?
Tom Gazaway:
1 – Knowing their options
2 — Credit Challenges
3 – Borrowing the RIGHT way
4 – Choosing the correct lender(s)
Smallbizlady: Please explain the 2 ways you can raise capital for a business?
Tom Gazaway: Yes. You can only raise capital through debt or equity. Explain each briefly.
Smallbizlady: Credit is still really tight. What are the lending solutions for small business owners in today’s economy?
Tom Gazaway: At this point, there’s nothing new about credit being tight. Loan options for small business owners are primarily a function of credit, collateral, and the revenue and profit of the business. Of course, it does eliminate a lot of people if you need lots of revenue, good profit, valuable collateral, and great credit so this is a big reason why banks deny approx. 90% (or more) of the applications they receive from small business owners.
If you’re part of the 90% that won’t get approved by the bank then you’ll want to find someone who works with small business owners on non-bank financing solutions.
Smallbizlady: In my book, BYOB stands for Be Your Own Bank, but give me your opinion, Can a start-up get a loan?
Tom Gazaway: We do financing for start-ups all the time but that doesn’t mean it’s easy. HELOC’s used to be the most popular form of start-up financing and now we’ve seen that dramatically shift to credit cards. According to the Meredith Whitney Advisory Group 82% of small business owners use credit cards. The problem is that most people end up using those credit cards the wrong way and they miss out on several benefits. Keep in mind that 30% of our FICO scores are determined by the balances on our personal credit cards so if you use your credit cards the wrong way like most people do then you’ll hurt your credit scores, miss out on tax benefits, increase your risk of losing your credit lines, and pay too much in interest.
Smallbizlady: How can a small business obtain an unsecured loan?
Tom Gazaway: Your best bet for unsecured money is either through credit cards or a peer to peer loan. Some banks offer unsecured personal loans but the one’s that are approved (less than 10%) are usually for less than $10,000 so they are pretty small.
Smallbizlady: What credentials should a small business owner have in place to qualify for loan?
Tom Gazaway: It does depend on the kind of loan they are looking for but it does go back to understanding your lending options and it’s normally pretty important to either have good credit or to work on making it better. Credit is such a foundational component of most small business lending solutions that I can’t emphasize its importance enough.
Smallbizlady: What is a conventional business loan vs. a line of credit and how should they be used?
Tom Gazaway: A loan is a fixed installment loan that you can only use once and a line of credit is something you can use over and over again. Loans are generally for long-term purposes of 2-5 years and lines of credit are traditionally best for short terms purposes (30 days to 12-18 months).
Smallbizlady: Your niche is getting loans and lines of credit for businesses without collateral and — many times — without financials? How is this done?
Tom Gazaway: For us we’ve worked with hundreds of small business owners and we’ve done thousands of applications with all the top banks across the country so when you do this you learn what’s best, what works and what doesn’t, and you learn to match people with the lenders that are best for them. We have found some good ways to get people between $25k – 100k with good terms and without needing collateral or financials.
Smallbizlady: There’s lots of scams out there so how can small business owners find a trustworthy vendor to help get them secure financing?
Tom Gazaway: First of all, you should check out any companies thoroughly before dealing with them. Check out their record with the Better Business Bureau and also, be careful if they charge up-front fees.
Smallbizlady: I’ve heard of programs where you can buy a shelf corporation or build your business credit separate from your personal credit and you can obtain loans and lines of credit without any personal guarantees…is that real?
Tom Gazaway: No. We have never sold a Shelf Corp and we’re intimately familiar with the strategies involved in building business credit. Although I would love to be proven wrong, it’s just not a reality to think that you can have or get a “cash line of credit” as a small business owner without a personal credit check and without personally guaranteeing the loan. The exception to this are the vendor tradelines…explain.
Smallbizlady: What are the biggest challenges you face in dealing with people who are looking for financing?
Tom Gazaway: It’s kind of tough to answer because we get so many applications from so many good people all around the country. There’s the obvious answer of some people not having good credit but for the 75% of our Pre-Quals that we can work with I would say that the answer has to do with what I call the “trickle-down effect”. Let me explain. We all know that we’re in a tough time with the economy. We also know that the credit and lending markets are right at the heart of the challenges we’re facing. Lending has not shut down but it has seriously slowed down compared to a few years ago. We are offering a pretty nichey solution where people can get between $25-100k in loans or lines of credit and we can do it without collateral and without financials. There are sometimes 2 extremes that we face with this. One, is that some people who realize how tough the credit markets are simply don’t believe we can even do it. We simply tell them that we can, we do it all the time, and remind them that we don’t charge any up-front fees so if they only have to pay our fees after they get their approvals then what is there to lose? Then the other extreme are people who sort of long for the “good-ole days” and they think that it should be easy to get the money since they have such good credit. I remind these people that the pendulum has swung from one side to the other side and that until we get the pendulum somewhere in the middle that we can only pursue the options that we have as of today. Let’s not be-labor the point and do what we can in todays economy, move forward, and position ourselves even stronger for the future when we hope the lending markets will open back up a bit.
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