LOAN MANAGEMENT

Loan Management

Loan Management

Money makes your business go. But don't try going to a bank to get it when you've just started in business. Banks normally make loans only to businesses with operating histories. This section will give you some alternatives, some strategies and some things to think about as you go about finding the money to make your business work. (Hilary, Lennox, 2005, 211-229) Our first reminder is that personal savings should be considered the primary source of funds for starting a business. If you haven't started already, start now to begin accumulating cash through personal savings.

Also, don't overlook the Small Business Administration (SBA) loan guarantee programs available for start-up businesses. With a SBA guarantee program in hand, your bank will be happy to talk with you! Refer to the Resources section to get more information. (Hilary, Lennox, 2005, 211-229)

Finally, start your search for financing with a good credit rating. Most all sources of financing or credit have come to rely on a four-letter word to score your credit worthiness: FICO. FICO is a numeric method, using just three digits, to predict the likelihood of your paying your credit as agreed. FICO scores range from 365 (not good) to a high of 850 (great). The score evaluates your credit payment history, number of open accounts, overall credit balances and public records such as judgments and liens. (Hilary, Lennox, 2005, 211-229)

Generally, a FICO score above 680 will produce a positive response while a score below this will cause a lender to be cautious. A good way to obtain your own score is to enter "FICO" into a search engine. Several sources will charge a modest fee to calculate your score. Before seeking financing or credit, it is a good idea to know where your FICO score stands.

How Much Money Do You Need?

Or, how much can you reasonably expect to get? Refer back to your business plan. If it still doesn't answer the question, let's go step-by-step. In Session 8, Accounting and Cash Flow, you learned how to predict future cash needs by using a cash flow control form.

The cash flow control form will spell out all of your sources of income and expenses. For example, some expense items might include:

Buying supplies and inventory while waiting to get paid

Paying payroll and rent

Buying equipment and fixtures

Getting a computer

Buying the business

Prioritize those areas where your options are limited to paying in cash, and review your alternatives where there may be another way. For example, it is not necessary to pay all cash for a delivery truck when you can rent or lease one. Next, review what might serve as collateral for your loans. (Hilary, Lennox, 2005, 211-229)

Unsecured Loans

Some credit is granted on an unsecured basis, such as credit cards, but most small business loans are secured by the assets of your business, your personal assets, or both. Unsecured means that there is no collateral granted for the ...