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Finding Financing for Small Businesses

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It’s been roughly seven years since the beginning of the “Great Recession,” and according to the 2015 Bank of America Small Business Owner Report, only one in five small business owners feel their respective businesses have fully recovered.

It’s a mindset that has led many business operators, including those in the automotive service industry, to hunker down, Chad Otar says, limiting spending and hindering growth.

Otar is the managing partner and a co-founder of Excel Capital Management, which offers alternative lending and financial solutions to businesses, including many in the automotive aftermarket. He says the passiveness of business owners today comes down to one thing: capital, or a lack thereof.

“The country is still in some type of recession,” he explains. “Some businesses may have died out, some may have survived, but there’s always the need for increased capital.”

Confidence among small business owners has waned, though: Even while 31 percent of them reported borrowing money on a regular basis, the net percentage of owners expecting credit conditions to ease in the coming months came in at negative-6 percent in a December 2015 report by the National Federation of Independent Business.

The state of small business financing is not as dire as those numbers would lead you to believe, though, Otar says. “Small business owners wear multiple hats” and everything they do, he says, can impact a credit score (most banks use FICO scores as an initial pre-screening benchmark). And a clear path to financing can come from a clear understanding of your business and the best options available.

Lending Options

For many, the easiest and most logical way to obtain financing is to apply for a loan at a bank. That’s what Chad Miller, owner of Chad Miller Auto Care in San Antonio, did before purchasing his shop.

“I got in contact with a business lender through a local bank,” Miller says. “The bank did most of the work.”

For owners who think they might have trouble qualifying for a traditional bank loan, many banks and lending institutions participate in Small Business Administration (SBA) programs, which help to facilitate the financing process. SBA loans are more flexible than other loans and are helpful when a business does not need the loan immediately, Otar explains. The approval process can take roughly a month.

Miller was approved for an SBA loan and a loan from the bank, which covered the purchase of the shop and supplemented equipment purchases and renovations. Before applying, he made good use of SBA.gov and researched what he would need for the process.

For many shops, it’s not as easy as it was for Miller, but there are other options.

“Since companies like us have come in, financing has increased,” Otar says. “If the bank says no, we try to fill in that gap and keep them moving.”

Otar provided some alternative options for financing outside of banks:

  • Merchant Cash Advance: This is the most common type of financing for the automotive industry, he says. Through a merchant cash advance, short-term financing transactions are collected through a set percentage of your Visa and MasterCard sales. There is no set repayment schedule.
  • Automated Clearing House (ACH): This option is a type of merchant cash advance that is repaid on a daily basis by direct ACH debits instead of a merchant account.
  • ACH Loan Products: These are considered loans and have a fixed repayment schedule.

Other options available include accounts receivable financing, equipment financing, business lines of credit, start-up funding, and term loans.

How to Obtain Financing

The most important thing is to be prepared, Miller says.

“Every time we turned around there was more paperwork to sign. The reason we found it simple was because of the planning we did. We didn’t just go in asking for money without justification,” Miller says.

Before going to the bank, Miller and his wife prepared a solid business plan that had projections for the proposed shop, based off Miller’s past experience as a general manager of another facility.

“I got to see the inner workings, I knew what I needed to do to prepare a budget,” he explains. “I saw all of that, so I didn’t leave anything out.”

He also made sure that his finances, both personal and professional, were in place. Another key? Miller says partnering with a good lender and business bank helped him through the entire process.

“Full disclosure is also important. Don’t leave anything out when applying for a loan,” he says. “What I found in talking to my loan person was not to hide anything. Lay everything out there, whether it be financials or background information. Be forthcoming with the bank and everybody involved.”

He now is going through the same channels to get money for an addition on the shop.

“Be prepared with the reasoning,” Miller says. “The more prepared you are, the easier the loan process.”

Once you start looking for financing, be sure to think it through and make the money work for you, Otar advises. Owners should make sure to take out only what they need and can afford to pay back.

“Do your homework. Identify exactly how much you need. Don’t overextend yourself,” he says.

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