However, with banks tightening the reins on lending for businesses without a pristine credit standing and good cash flow, a loan can be hard to obtain.
"Since the 'severe recession,' small businesses have faced some difficulties," said Dean L. Balsamini, director of the Staten Island Small Business Development Center (SBDC), which offers free one-on-one consultations with start-up and existing businesses, seminars, management roundtable discussions and other educational opportunities.
"There's been a reduced borrowing capacity in many cases because banks have been much more selective in the loan process."
Bank lenders admit that it can be difficult to obtain a small business loan.
"It's challenging (to get a small business loan) today," said Ken Doherty, executive vice president of Northfield Bank.
"We have a situation where you have flat revenue, where sales aren't increasing because many (small business owners) have leases that date back to 2007 and 2008 when rents were extremely high. Today, they (small business owners) need capital more than they need debt."
Northfield Bank uses three elements of criteria to determine if a small business qualifies for a loan.
"To obtain a loan we want a credit score of 680, three years experience in business and adequate cash flow to service the debt," Doherty said.
In many cases, small businesses aren't getting loans because they lack adequate cash flow. "Taxes seem to be a major problem because they are a drain on business owners' cash flow. Then you add all other operating expenses," Doherty said.
While small business people are often faced with obstacles when applying for a loan, this goal isn't unattainable.
"I think small businesses can get loans today," Balsamini said, "but it's somewhat difficult unless you have a track record. If you ask for a loan and the lending institution asks you to put up 20 or 30 percent collateral, and you can do that, plus provide funding over the first three to six months, then you've established credibility. It's a matter of having your oar in the water with the bank."
Another option is working with an alternative lender. For example, Michael J. Genovese, senior underwriter for Universal Merchant Funding, says his company specializes in funding for small- to medium-size businesses.
"We provide term loans for these business people. We can provide loans to people with credit scores of 550. We can even help some people with credit scores of about 500," he said.
"We'll walk into a company that has been in business for more than six months and give it an unsecured term loan. You don't have to put up any type of collateral. The loan is based on cash flow -- how much money is coming in and out of the business."
He said the average loans his company gives to small businesses are between $40,000 and $50,000 and are used for inventory, expansion, renovations and taxes. ?
MAXIMIZING LOAN POTENTIAL ?
Balsamini suggests that business owners do the following to maximize their chances of qualifying for a loan:
*Have a solid updated business plan. "Lenders look at the whole package," he said, noting the SBDC helps small businesses develop their business plan.
"Know your market. Know your competition. When you demonstrate that you have a handle on your products and services, this is a great way to establish credibility with a lender."
*Know your business and personal credit rating. "Everyone is entitled to free reports from each of the three credit unions -- Equifax (equifax.com), TransUnion (transunion.com) and Experian (experian.com)," he said.
"If your credit rating is poor, you should know that, but you also want to know why it's poor. In many cases, there could be erroneous information, where you've closed out credit cards, and you can get that remedied."
He noted that personal credit weighs in a lender's equation for granting a loan. "It's very important to have your credit rating in good shape. You want to be in the 700+ range," he said.
However, if you have poor credit and limited cash flow in your business, and have been denied a loan, there are ways to cut business costs to keep your company afloat.
"You need to internalize, look at your business and see where you can cut costs," said Balsamini. "Do an analysis of your business. Ask yourself 'do I have enough people doing the right jobs? Do I have credibility in the community? Have I retained my customers in this tough period? How can I lower my cost base? The first step is establishing cost containment." ?
Source: http://www.silive.com/news/index.ssf/2012/10/staten_islands_small_businesse_1.html
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