Business: a simple word, but a difficult endeavor. If you live in Southeast Colorado Springs, an almost impossible endeavor. Why? Because like everything else, the “odds” are not in our favor.
For the past six years, I have been working through organizations like the Pikes Peak Small Business Development Center, Solid Rock CDC, Thrive and Colorado Enterprise Fund to educate business entrepreneurs in Southeast Colorado Springs. This column is an effort to reach small-business owners with important information.
Let’s start with the five Cs of credit. All lenders are going to screen candidates by these five criteria. It is important to know what they are and to be ready.
Collateral — What property will you pledge to get the loan? Do you own a home? Traditional lenders prefer home equity. Nontraditional lenders, like Colorado Enterprise Fund, will accept titles to vehicles. Business owners who are looking for a loan to buy equipment sometimes ask if the equipment they buy can be the collateral. The answer is: Don’t count on it.
Credit — What is your credit score? Have you had past credit history issues? If so, take the time to clear these up before applying for the business loan. Are you behind on child support? If so, you’ll need to produce documentation on how you made arrangements to catch up. Do you owe back taxes to the IRS? You will need to produce documentation showing that you have a payment plan.
Capacity — This is the ability to repay the loan. You will be asked to fill out a personal financial statement, which is intended to find out if you have military retirement income or other income. You also will be asked if you have a co-signer to the loan who has an income (i.e., a spouse). A lender wants a co-signer so that if your business does not survive, the co-signer’s income can repay the loan. The personal financial statement also will disclose any debt, so be prepared to answer questions regarding this. Lenders are specifically looking to see if the business owner has taken on a lot of debt and is stretched thin.
Capital — This is your down payment amount. The business owner needs to have skin in the game. Please don’t go to the lender and ask them to fund 100 percent of the loan without having any cash to contribute. It just doesn’t work that way.
Character — Of all five, this is the most difficult to assess. Typically, traditional lenders will look at history of job stability, business experience, community service and, possibly, letters of reference from community leaders.
This is not a time when your good looks and “the dog ate my homework” stories will work. Lenders have seen and heard it all. Their job is to manage a portfolio of money and if you do not qualify, you will be told the truth. It’s not personal, so try not to take it that way.
Some tips to be successful:
• Start where you bank and build a business-lender banking relationship; this can make a huge difference in lending opportunities. Southeast Colorado Springs has two traditional lenders: TCF Bank and ENT Credit Union. Ask to speak to a business banker and let them know you’re interested in a loan. Thee kinds of lenders have the lowest interest rates.
• If you don’t succeed with a bank or credit union, due to their stricter requirements, then think about working with a nontraditional lender like Colorado Enterprise Fund. Nontraditional lenders have higher interest rates than traditional lenders, although much lower than credit cards, and they can be more flexible.
• If you are a startup, make sure you have a business plan with projections. These are the most difficult businesses to get funded. A business plan template can be found at: sba.gov/business-guide/plan-your-business/write-your-business-plan.
Need more help? Contact the Pikes Peak Small Business Development Center for no-cost consulting. Spanish-speaking consultants are available: pikespeaksbdc.org/consulting.
If you are a justice-involved citizen and have an incarceration history, Colorado Enterprise Fund has a loan program that can potentially assist you.
Please email me your questions at email@example.com and look for this column in an upcoming issue for more important business information. To learn more about Colorado Enterprise Fund or to fill out a loan inquiry form, please go to coloradoenterprisefund.org.
Cory Arcarese is a lending officer with the Colorado Enterprise Fund and a senior consultant with the Pikes Peak Small Business Development Center, focused on Southeast Colorado Springs.