Commercial loans are different than consumer loans.
That’s why Robin Roberts, a volunteer consultant for eight years at the Pikes Peak Small Business Development Center, recommends that entrepreneurs thinking about starting a business should work with an experienced commercial lender.
“Business owners should know how much they need to borrow, be clear on the uses of funds, and have a legal business entity formed with appropriate organizational documents,” she said. “Most banks and the Small Business Administration will require any owner with more than 20 percent ownership in the business to sign personally on the business loan.”
This past week Roberts, who is president and CEO of Pikes Peak National Bank, shared a few funding tips with the Business Journal to help create a checklist for those venturing into business ownership.
Roberts advised that start-ups or existing businesses introducing a new revenue stream, such as a new location or product, should develop a business plan.
She pointed entrepreneurs to a template on the SBDC’s website, pikespeaksbdc.org.
“Also, SBDC and SCORE have volunteer consultants who can help you with your business plan, as well as hold classes on business planning,” Roberts said.
Many businesses start or expand through investments or loans from family-members or friends.
“These can be good ways to obtain capital with a flexible repayment schedule or through an ownership percentage in the company,” Roberts said. “Make sure to put these agreements in writing; do not make informal and/or verbal agreements for loans or investments by family members or friends.”
Roberts believes owners also should invest in their own business.
“This can be proven via a down payment or is evidenced by equipment or other assets that were paid for with cash and are unencumbered,” she said. “Business owners often use personal assets to provide their investment in the business, such as equity in a home or titles to vehicles or other equipment.”
Many banks provide SBA loans, which are guaranteed by the federal agency.
“The additional guaranty from the government allows the bank to make exceptions on conditions of the loan: lower down payments, longer amortizations, less collateral required,” Roberts said. “SBA loans have longer fixed rates and often have pre-payment penalties. Make sure you are working with a lender who is well-versed in SBA lending; there are many banks in Colorado Springs who regularly fund SBA loans.”
If an entrepreneur cannot obtain bank financing, there are other lending options in Colorado, including the Colorado Enterprise Fund, Accion and Colorado Lending Source.
“All three have specific loan programs for veterans and their families, and work with borrowers who have been turned down by a bank,” Roberts said. “Interest rates may be higher but loan terms can be more flexible.”
Meanwhile, some companies may be better served by obtaining an investor for funding.
“Investors provide capital in exchange for a percentage of ownership in the company,” Roberts said. “This type of funding is appropriate for companies with long research and development cycles and revenues that will be realized in the future, not within the next 30 days when a bank payment might be due.”
There are multiple investor groups in Colorado, such as High Altitude Investors and Rockies Venture Club.
“Peak Start Up is a good organization to get in touch with as well,” Roberts said.
Last, crowdfunding is a relatively new source of funding for companies.
“Websites such as Kickstarter and GoFundMe have been known to provide capital for businesses, especially businesses who obtain revenue through presales of their product,” Roberts said.
For more information on starting a business, visit pikespeaksbdc.org.