Can a Goat Herder Teach Banks How to Loan to Small Business

Small businesses and entrepreneurs need to be able to get loans from banks to grow and or expand their businesses. Entrepreneurs and small businesses go to banks to get loans to make capital improvements, large purchases, buy a business, and generally expand their business. Basically small business have financing needs that go beyond the immediate cash flow generated by their business.

Imagine driving to the bank in your new Lexus, dressed accordingly, meeting with a bank loan officer and discussing your 5 years old business, your college degree, OK credit score, net worth of $500k and your business generating $50k a year in cash flow and asking to borrow $10,000. Do you think you will get that loan?

Now- For a moment pretend that you are a poor goat herder walking to town to get a loan, you don’t have any money to open a savings account with, you don’t have any normal collateral to secure a loan with, you don’t have a credit record as you have never been formally employed and you’ve never taken out a loan before. Also consider that you might even be unable to complete the necessary paperwork as you are illiterate. You earn about $1/day, and you want a loan of $250 to buy more goats to grow your business. Do you think you will get the loan? – Due to Micro financing the the goat herder may get the loan before the Lexus college graduate.

Many of us Entrepreneurs and Small businessmen/women donate time and or money to various causes or needs. I have been involved with Kiva since 2007. Kiva provides microfinance to Third World Entrepreneurs to help them grow their business. Kiva was founded by 2 former 20 something year olds that were former employees of TIVO and PAYPAL. Microfinance is the supply of loans, savings, and other basic financial services to the poor. As the financial services of microfinance usually involve small amounts of money – small loans, small savings etc. – the term “microfinance” helps to differentiate these services from those which formal banks provide. Why are they small? Someone who doesn’t have a lot of money isn’t likely to want to take out a $5,000 loan, or be able to open a savings account with an opening balance of $1,000. Hence – “micro.”

These are small loans, multiple lenders will “pool” their loans to come up with a lump sum to provide to the Entrepreneur. Again most of the Entrepreneurs I have loaned money to over the last 4 years earn less than $1/day. When an entrepreneur pays off a loan, I reloan those moneys to another. So far I have loaned to 18 different entrepreneurs and repayment of loans have been 100%. Since 2005 Kiva as a group has loaned almost $150,000,000 to almost 400,000 Entrepreneurs and repayment has been 98.27%. Why can this organization have such success in getting loans repaid from those with so little and banks in our “developed nations” loaning to those with abundant resources have problems so significant that these banks need a “bailout” from their government and ultimately taxpayers. Is it the conventional bank that is doing something wrong? Are they loaning to the wrong people on a consistent basis? How much of the blame falls on those that are requesting the loan?.

Currently how many good entrepreneurs and small business are not able to get loans as a result of mistakes made by conventional banks in the past. It seems to me that banks tend to over respond to problems. Obviously if you are a lender and want to have no loans default and you loan no money- you can achieve your goal. As a business broker I see the need for lending to allow buyers to finance the acquisition of buying a business. I also see income statements and balances sheets of reasonable small businesses that are using credit cards to help finance their businesses. It is hard for me to understand how our economy is benefiting by having small business owners take these “whatever is necessary” financing steps when traditional prudent lending to small businesses could truly be our fastest way to our economic recovery. The banks reduce/tighten their lending, the need for small business financing continues, higher interest is being paid through credit card financing, non-conventional means, and when does that higher expense cause employee reductions. Small business could divert money from high interest payments to investments and improvements that actually improve their business and create jobs.

Why can the goat herder get a loan and the Print Shop owner not? Or maybe if I were a banker I could ask why does the goat herder pay off his loans and the Lexus driving College Graduate Default? I understand there is a lot more that goes on between the comparison of a conventional bank and micro finance- but maybe conventional banks could learn something from Micro finance groups such as Kiva.

Business Finance Source and Business Finance Start Up

A business finance source is a way a business can obtain funding, either for start-up or operating expenses. There are many different types of sources, including sales, loans, and investors. Each has different terms, benefits, and disadvantages. Business owners tend to use two or more different sources in order to fund their business.

Business finance sources fall into two main categories: internal and external funding. Internal funding comes from the profits made by the business by sale of products or assets. External funding comes from lenders and investors. The most common external finance sources are loans. Short and long-term loans require borrowers to repay funds at an interest rate for a set period of time. Overdraft loans allow a borrower to spend a certain amount of money, and the lender charges interest on the overdraft amount. Debentures are loans that let business owners pay off all loaned funds at a specified time at a set interest rate.

Before deciding which method is best for a company, business owners should consider a variety of factors. The cost of the business finance source usually is the most important factor considered. Owners look at the interest rates and payment plans to determine the profitability of obtaining a certain funding source. Businesses that have a history financial stability may want to consider an internal source of revenue before opting for an external source. It’s also important to determine how long the business will need additional funding. A short-term loan would be best for projects that would only take a short time to complete.

Business finance start-up generally refers to the cost to start a new business. It includes determining, calculating, and obtaining start-up costs, as well as managing those finances effectively to ensure the profitability of a new business.

The first steps to business finance start-up are to determine and estimate the amount of funds needed to open a business. These start-up expenses may include one-time fees, such as permits and licenses needed to operate the business. Initial costs may also include ongoing fees, such as rent and utility payments. Business owners usually only include the necessary expenses when determining the total cost to start-up. In order to estimate the amount of funds needed for the business, owners should set up worksheets that list each expense and how much it costs.

Once a business owner has an idea of how much it will cost to start a business, he or she can research the different business finance start-up options available. Most start-up funding comes from loans, which are provided by banks, the Small Business Administration, and other financial companies. These loans are usually based on debt financing and vary in amount of funding, interest rates, and terms of repayment. Family, friends, investors, or venture capitalists can also provide start-up financing based on equity. Federal grants are an additional option for non-profit businesses. Unlike most financing, grants do not have to be repaid, but they usually have strict requirements in order to obtain these funds.

An Elemental Guide to Shopping Center Financing

Since we haven’t fully recovered from the credit slump, finding shopping center financing through banks is getting to be quite a challenge, especially when banks have been denying credit middle of the process in some cases. However, do know that while getting a loan for shopping center might seem like an uphill battle, it is possible. And this holds true for various types of shopping retail centers such as strip centers, retail centers, super malls, regional malls, and so on.

There are instances that credit worthy borrowers with good financials and experience are getting turned down in their loan applications for retail center financing, and it wouldn’t be out of place to say that a number of deserving candidates get left out, simply because they haven’t used the right approach. Remember that looking for a shopping center loan can be difficult, and seeking professional help would certainly not be out of place. After all, owing large loan amounts, the relatively high interest rates and closing costs can leave the borrower in need of help.

Factors to be considered at the Onset:

While running a shopping/retail center can be quite profitable and rewarding, it is important that you consider various aspects before you even look for shopping center financing or retail center financing. Even though the investment will be significant, take into account costs that will be incurred otherwise, and these would include costs for tenant improvements, Leasing commission if the property has vacancy, repairs, insurance, taxes, and advertising. Ensure that the building codes have been adhered to and that all the required permits are in place. You also need to delve into factors such as location, project viability; and only then should you think about the type of loan.

The Loan Size:

Large balance loans start at $1M and can go up to $4M, and loans less than $1M but higher can $400,000 come under small balance loans. SBA financing for owner user retail center, is available up to $4M, and in both cases a down payment of around 25% should be expected. Note that in case of SBA loans; the down payment would come down to around 10%. Additionally, while large balance loans come with fixed rate and variable rate interest options, the small balance loans only offers the fixed rate option.