The following article is re-printed from an email sent by Mike McGrane, an SBA lender with Wells Fargo based in Roseville, CA.

The Senate and the House have both passed various versions of the following improvements to the Small Business Admin 7a and 504 loan programs. This is a very good thing for Small Business, Entrepreneurs, Banks and Business Brokers and Developers. There is something for everyone in this Senate Bill outlines below. It still needs to be signed into law and the SBA needs to make their official guidelines public, but this should be what is coming.

Senate Bill 2869 contains several critical provisions to bolster SBA assistance to America’s nearly 30 million small businesses and aspiring entrepreneurs. Specifically, the bill would:
• Increase the loan limit on 7(a) loans from $2 million to $5 million;
• Increase the loan limit on 504 loans from $1.5 million to $5.5 million;
• Increase the loan limit on microloans from $35,000 to $50,000 and increase the maximum loan made to a microloan intermediary from $3.5 million to $5 million;
• Allow the 504 loan program to refinance short-term commercial real estate debt into, long-term, fixed rate loans;
• Extend the authorization to provide 90 percent guarantees on 7(a) loans and fee elimination for borrowers on 7(a) and 504 loans through December 31, 2010; and
• Direct the SBA to create a website where small businesses can identify lenders in their communities.

A lot of new business owners like to move quickly. They work through their decision to move into business ownership, do a little research, decide how much money they have, how much they can borrow and then start doing “it”…whatever “it” means for them and their business.

There’s no question that research and understanding your finances are important. Going into business requires money and what goes on around it. However, if you want to borrow money to help fund your new business you are going to need at least 4 things. If you can’t be bothered getting these together you will not be taken seriously by sellers, landlords, business brokers, lenders or other related parties. Or worse still, you’ll be taken seriously, asked for these documents and when they found not to be in order, your dream will be shattered.

These four things are your resume, your credit score, your credit report and your personal financial statement.

Each of these is important for the following reasons. For lenders to let you borrow money they want to see your resume so they can see you have the skills to manage the money they lend you. If you’ve spent the last 10 years of your career in the IT industry and now want to borrow money to buy a preschool, then you may not be taken too seriously. Build a strong resume so it highlights your management skills and be prepared to tweak your resume to support each loan application.

Second, if your credit score is 650 or less, you will struggle to get a loan. That may sound blunt but it’s the truth. The main purpose a bank is in business is to make money. They make money by giving loans to people who can pay them back. A low credit score is one of the tools a bank uses to decide whether you are worth the risk and therefore if you will pay back the loan, with interest. Yes, this is very simplistic but your credit score is very important.

Third, before you apply for a loan, get a copy of your credit report to make sure it’s accurate and there are no errors on it. There are a few reasons for this. Credit reports are notorious for errors. Imagine your frustration to have a great credit score, spend weeks building and executing your business plan, building relationships with suppliers, signing a lease on the perfect location for your person and a major vendor asks for a copy of your credit report to complete their paperwork and they find a bad comment on your credit report and they decline your request! All because there was an error on your credit report that should not have been there in the first place. Bottom line; let’s get this taken care of now so you have time to get things in order.

The final item is to build a personal financial statement. This document may be required by vendors, banks, landlords or other parties that you are planning on buying a business from. If you have this information prepared and ready to go it is one less task to worry about and having it prepared shows you are serious with what you want to do.

Starting a business is exciting, stressful, exhilarating, tiring, stimulating and fun to name a few things. A great business has strong foundations. To build strong foundations always look first at your responsibility and what you do so the rest will take care of itself when you get to it.

If you would like some free documents to help plan your move into business ownership, please visit my website, www.RogersonBusinessServices.com. Once the home page loads, choose the “Sample Documents” option from the menu in the black ribbon across the top of the page and help yourself to 21 documents including business plans, break even analysis, profit and loss projectors, balance sheets, loan amortization calculators and more.

If starting your business is in your immediate future you and are not sure where to start, there are five major areas I would suggest you consider. This article is just about one of those, which is the need to create a solid business plan, but the four areas to help determine your fitness for business ownership are as follows. First, are you a self-starter? Second, how well do you connect with other people? Third, how good are you at making decisions? Fourth, are you physically and emotionally ready to start and build your business?

As I mentioned above, this article is about area number five, that is, how well do you plan and organize. If you plan on going into business you should, at a minimum, look at the following. First, you’re going to need to build a business plan. Just as you’ve heard Look before You Leap, you should have heard “If You Fail to Plan you Plan to fail.” I think a business plan is one of the best kept secrets. Everyone knows you need a business plan but so few business owners actually put one together. And if you’d like to test this out, call three people you know who own and run a business and ask them if they have a business plan. I will be surprised if one out of the three does. And if you find one business person that does have a business plan either ask if you can borrow it to model off it, or if that’s too sensitive, ask if you can meet with this owner to go over yours as I would guess the owner that does have a business plan is successful. And it’s always good to talk to successful business owners.

Why is creating a business plan so important. It’s important for a number of reasons. First, converting ideas that are jumbled in your head and putting them to paper makes you focus and really think. I guarantee you will say to yourself a number of times, what you think is clear and makes perfect sense in your mind, completely changes when you have to take the idea and put it in writing. Second, putting it in writing makes you think not only of that question or problem, but the next set of thoughts that flow from that idea. For example, if your business plan includes the idea of creating an Operations Manual, putting this on paper will make you capture the idea so you don’t have to keep carrying it around in your head. It will also make you start thinking about the purpose of the operations manual. Questions will then come to mind such as, who its mainly written for, who’s the best person to write it, how often should it be updated and by whom, who should check to make sure it works and you need to make sure its backed up with the other business documents so it’s not lost. So, one simple idea to make an Operations Manual spun off about seven other needs. Third, it allows you to communicate the business plan or core idea of the business in writing to professionals such as third party lenders, attorneys and accountants, or key support people such as family and friends or key employees and others.

There are two types of business plans. The business plan for a brand new business will have different criteria to the business plan of an established business. However, both business plans include an Executive Summary that captures the essence of where the business is at and the direction, you as the owner, plan on taking it.

If you would like a free template for either type of business plan, please visit my website; www.RogersonBusinessServices.com. Once the home page loads, go to the black ribbon at the top of the page and and choose “Sample documents.” Items 7 and 8 are the respective business plans and come from documents created by SCORE or the Service Corps of Retired Executives. SCORE is a great, free resource if you are planning on moving into business ownership.

For more information about business ownership, visit Andrew’s website at www.RogersonBusinessServices.com

The reality of the current downturn in the economy is that many companies will need to restructure to create the private sector jobs President Obama is talking about. At the time of writing this article there is 7.2% unemployment or the good news, 92.8% full employment. That’s good news if you’re one of the 92.8% but bad news if you’re one of the 7.2%. And these are national figures so if you live in some States in the US the unemployment rate is higher.

Regardless of your local unemployment statistics, if you have lost your job or are concerned your company may downsize but you need to make some money to put a roof over your head, feed the family, buy the gas to get around plus all the other things you need to do in life, perhaps you are thinking it’s time to get off the employment rollercoaster. This means putting yourself in control so you can work the hours you want, work in an industry you want to be part of and ultimately be in control of your own destiny. If that makes sense, what are your options?

The three options of business ownership

If you think business ownership may be an option for you, there are basically three choices. Option one is to start your own business. This means you have to come up with a creative new idea, test it to make sure there is a commercial market for your idea, and then once you get enough feedback, build and execute a business plan. This plan not only needs to ensure you make enough money to pay the costs of running your business and personal needs but also cover any debt you’ve incurred while you created, tested and deployed your idea.

Option two is to buy an existing business that has any of the following three goals. Your first goal could be to find a business that’s not doing well, determine the reason it is underperforming and then put in place the changes to have the business head in a positive direction. Your second goal could be to look for a business that’s holding its own and simply take the place of the existing owner with the expectation of enjoying the life style of this business owner. The third goal could be to look for a business that’s growing well but bring your skill set, new energy and capital and either continue the growth of the business or considerably add to it.

The third and final option is to buy the rights to a new franchise. Just so I am clear, you could always buy an existing franchise and continue its current ownership but this is really a variation of option two above. New franchises are appearing on the market all the time in a diverse range of industries and formats. At last count I had franchises in 84 different industries such as accounting, automotive, animals/pets, beauty care, building materials, children’s education, clothing, transportation, travel, upholstery and wholesale etc while the formats range from Business to Business (B2B), Retail, Home based etc to name a few. The option of buying a new franchise tends to appeal to those who have worked in Corporate America but decide to look elsewhere for their future. The best advantage of a franchise for a new business owner is that it brings a system or business model that has had the wrinkles ironed out; similar to the model used in Corporate America. The franchisor has proven the business model, fine tuned the systems, built the training for the franchisee, knows what accounting systems to use and has these up and running and is looking to re-create these business models across the US and often into Canada and Mexico, and around the world.

Understanding risk

If you’re deciding whether business ownership is right for you, one of your most important evaluations will concern risk. We see this everyday with how we handle our money. We know we need an account to pay our bills and often use a checking/savings account combination. The money is very safe (backed by the US Government) and available whenever we need it. Because this money is needed for virtually immediate use our risk tolerance is very low. With that need taken care of our next decision involves putting aside excess capital that hopefully stays ahead of inflation but is only tied up for the short term of say 6 months to 2 years. For this option we look to CDs, Bonds or Treasuries which we also know are safe and meet our low risk tolerance. We also understand the importance of another form of investing and that’s regularly putting retirement money into a 401K plan or similar which is money invested for the long term of 10 years or more. We know this money is at a higher risk as it fluctuates in value on a daily basis with movements in the stock exchange. For this higher risk we require a higher return on investment. With those needs addressed, and if we have any additional spare money, we then look at other longer term investing options which includes buying shares in the stock market, buying corporate bonds, playing the foreign currency markets, trading commodities or some other form of investment we know and handle ourselves or pay a financial advisor to manage for us.

The bottom line is that you have many options with the final option you choose to make based on your risk tolerance. When deciding whether to start your own business, buy an existing business or buy the rights to a franchise, the level of risk will be one of the major decisions you need to evaluate. Your comfort with which option to choose will also depend on a number of variables. These include how much money you have to invest, the skill set the business requires and how closely this matches yours. Another major factor includes your financial status. Do you need to borrow, what is the condition of your credit score and, is your credit report acceptable to a lender? It may also ensure your background doesn’t preclude you from business ownership due to a criminal record or other circumstance.

What’s the next step?

If you’ve read the above and think business ownership is right for you or you would like to know more, your next steps are to become more educated so when you get to make that final decision whether you will or will not go into business ownership, you have as much information as possible. For this reason I have written three guides to help those considering business ownership. These guides are respectively called – Successfully Start Your Business, Successfully Buy Your Business and Successfully Buy Your Franchise: Expert Advice from a Business Broker. I’ve personally been in business ownership for 25 + years having owned and operated 5 businesses; two in my native Australia and now three in California. I still remember the fear and sleepless nights deciding whether to buy my first business and relocate to a new city with my 6 months pregnant wife. But as I look back, business ownership provides a wonderful set of experiences and skills I would never have known if I didn’t recognize and manage the risk that comes with business ownership. There is no question; business ownership is not for everybody. But business ownership is a skill to acquire and once it’s acquired brings about opportunities those working a job never see. Plus one of the rewards to it all is that it puts you in control so when you go through recessions you have the capacity to succeed.

Importance of your Buyer Profile

Before you start looking at business ownership, know your Buyer Profile so it reduces your chance of failure or giving up because you are burnt out from the process. For most new business owners, naturally enough their goal is to find the perfect business. This makes sense but it only makes sense if you know what you want but I also think “perfect” is too high a standard. Businesses are dynamic and constantly changing. This is because it is primarily dealing with people, whether they are owners, family members, customers, employees, lenders, landlords or government agencies. Look for what you want, but make sure your criteria is not too high.

So how do you know what business to look for? The answer to this question is by building and creating your personal Buyer Profile. Most buyers are not sure where to start the process. From my experience from buying and looking at many businesses and working with a large number of new or potential business owners the first step is to start with yourself. Most buyers don’t do it because they don’t know what they are looking for and expect it will reveal itself to them as they start their search process. If this is what you choose to do it will increase your chances of failure as there is no such thing as the perfect business plus each buyers profile is unique. It is unique because there are so many variables. The variables include levels of education, amount of downpayment to buy a business, credit scores, credit report, business and life experiences, management experience, family support, personal situation such as being single or married with 4 children to support and most important of all, the location where you live and the opportunities available. If you come to your decision to look at business ownership and you are fresh out of college your frame of reference is really the subjects you studied in college and your life and business experiences. If you’re a 40 year old executive who has worked in Corporate America in the technology field for the last 10 years as a sales manager, but in your earlier years worked in retail books and the travel industry, you have much more diversity to pull from.

Your Buyer Profile is a critical starting point for you. I normally spend about two hours with each client before introducing any business opportunities to them as I want to get a basic level of understanding of the industries of interest to them and their preferred format such as whether they like retail, Business to Business (B2B), Food, Automotive or, Children’s services etc plus an extensive range of other questions. If the buyer knows what they do and don’t like it allows them to focus and thereby greatly increase their chances of finding the business they want.

If you would like more information about each of the books mentioned above, please visit the following website http://www.successfullybuyyourbusiness.com where you will find a brief description of each of the guides. If you would like some free tools to work with, please visit my website: http://www.RogersonBusinessServices.com/samples.htm. On this page there are some Excel and Word files such as a Business Plan, Sales and Marketing plan, Startup Budget planner and Cash flow projection etc.  Download and use these free tools as much as you need.

The rewards to business ownership for each person are unique and real. If you think business ownership right now with the economy in recession is not a good option, I would disagree. The economy is constantly changing and looking for new ways to invest capital and provide a return on investment. Some areas of the economy are about to explode such as health care, businesses in energy efficiency, the “green” industry and, new technology innovations to name a few. It will take time to research, create and execute a plan and then explore any other options available to you. Making the decision to take the risk is the hardest part. Once that is done, the rest takes care of itself. If you think business ownership is part of your future, learn as much as you can, accept it comes with risk and get on with it as the rest will be up to you. Whether you stay in your current job, find a different job because you aren’t enjoying what you are doing or move into business ownership, at the end of the day it’s still all up to you and how you manage the risks that come from each decision you make.

A business plan is a critical document for any business. PERIOD

SCORE – the Senior Corps Of Retired Executives lists the lack of a business plan as one of the top three reasons a business fails. Any creditable book on owning or running a business ownership states its importance.

If you put a business plan together there are two types. The first is a business plan for a brand new business with second type for an existing business. If you would like a free template to use for either business plan, please visit my website; www.RogersonBusinessServices.com/sample documents. Items 7 and 8 are the respective business plans and come from documents created by SCORE and are available for free.

To create the best business plan that you can, consider the following ten tips.

1. Complete all sections

Business plans take a little time to create. Don’t rush the process. Part of its value is making you take a thought in your head and convert it to a valuable and considered idea.

1. Focus on cash flow if the business plan is to support a loan application

If the business plan is to support a loan application to a bank, make sure the cash flow projections are solid and make sense. If financial planning is not one of your strengths, consider getting help from a professional so you get it right. Preferably work with someone that you will use on an ongoing basis in the business so they can provide continuous and consistent advice.

1. Include a Break-even analysis if the business plan is for a loan application

A bank is in business to make money. The bank therefore want to see from you that you understand there will be income and costs but more importantly, how long it will be before you get to a break-even situation and whether you have the resources to get there, and just as importantly, what buffer you have if it takes longer than you think.

1. Financials need to be realistic

Points two and three above also concern your finance, but this one is just as important and that is, make sure your financial projections are realistic. If the reader of your business plan doesn’t think your financial projections are realistic they will question the rest of the business plan, if they decide to take your business plan seriously.

1. Tell a story but don’t hype the story

This is not a marketing document for somebody to buy your product or service. It’s a document to explain the what, how, when, where, why of both the present and future of the business.

1. Write the plan to the person who knows nothing about the business

A business is a living and breathing entity that essentially has two main components; people and money. The goal is to explain in simple terms to anyone who reads the business plan what the business is about and what it stands for and how the thoughtful and proper use of both capital and labor will be successful and what help is required to contribute to that success, if the business plan’s purpose is to support a loan application. Remember, write the business plan according to the audience that will read it.

1. Keep the business plan business-like and professional. Not a place for humor or personality.

If the business plan is to support a loan application, most lenders are looking to see the direction of the company, whether their capital investment will be used wisely and that the business is something they can believe in.

• Make sure the details are accurate – don’t exaggerate

A business plan is a place to introduce and explain. Wherever possible, support opinions, thoughts or suppositions with facts and statistics; this is not the place for unrealistic exaggerations. Every business fits broadly into an SIC or NAICS. SIC stands for Standard Industrial Classification whereas NAICS stands for North American Industry Classification System. Reports and information about these industries are available and provide readily available data about an industry and the direction it’s going. Use this data in your reports to give credibility to the business plan. Your local library will help with getting access to this information.

• Be concise, clear and simple

This is a business document. The reader is not looking for a novel, they can get that from a bookstore.

• Be careful with the use of technical jargon

Technical jargon can speak to the sophistication of the business plan but it can quickly alienate a reader who is not familiar with all the terms. Use technical jargon sparingly or provide a simple and clear definition, if it’s important to use. Make sure the explanation is generally accepted; not the writer’s pet project. If in doubt, have someone removed from the business read the business plan and offer constructive criticism.

A business plan is not a static document. It ebbs and flows with the business and helps create agreement and keep things focused.

For more information about business ownership, visit Andrew’s website at www.RogersonBusinessServices.com

If you plan on selling your business, it will help you to understand the different types of buyer. Each buyer who inquires will have their own unique reason to want to buy. By talking with the buyer, understanding their needs and then placing them in one of the categories below, will help you understand what they are looking for so you are better prepared to discuss and negotiate the transaction.

Individual Buyer

This is generally one person with good financial resources and background or experience for managing and leading a particular business in a particular industry. This type of buyer is usually looking for a particular business that is financially healthy. They are looking for a return on their investment and some flexibility in lifestyle choices. They also believe they can buy and at least maintain the current performance of the business or take it to a higher level.

Corporate Executive

This is a buyer who has many years of service with a large corporation and has concerns that downsizing may occur. In some cases, they are getting older and have their retirement money tucked away and would like to see what it would be like to run their own business. Franchise businesses are particularly attractive to them as they like the structure and organization that comes from working in this business model.

Existing Employee

The buyer of a business can be an existing employee. If the business has a strong cash flow and the employee is able to put together a small down payment with the seller carrying back some of the financing, this can be a mutually beneficial arrangement. SBA financing may be an option here—especially if the employee has management expertise.

Investment Buyer or Financial Buyer

All buyers want a return on their investment. However, with investment or financial buyers this is their primary motivation. Their ability to get financing on as large part of the purchase price as possible is also motivating. They have less interest in the type of industry and many of the specifics of the business operation.

Synergistic Buyer

This is usually a company and their purpose of buying the business is their belief that joining the two companies will produce more, or be worth more, together than if the two companies were to remain separate.

Industry Buyer

This type of buyer is often a competitor or owns a very similar operation. They know the industry well and therefore see little value in paying for the expertise and skill of the seller.

Strategic Buyer

Like the synergistic buyer, the strategic buyer is usually a business owner with a goal to expand their current company. They leverage their expertise to enter into new markets by acquiring market share and then increase market share through the acquisition. Their strategy can also include deploying a new technology and/or eliminating a competitor or some competitive element.

If you would like more information about selling your business, visit my website; http://www.RogersonBusinessServices.com and order a copy of my book Successfully Sell Your Business: Expert Advice from a Business Broker.

There are five critical areas an SBA lender considers in detail when deciding whether to underwrite an SBA loan. These five areas are Cash-flow, collateral, credit, management experience and liquidity. If you plan to apply for an SBA loan make sure you consider each of these areas. You don’t need to be perfect in all these areas but if you are weak in one area you will need to be so much stronger in another.

Let’s have a look at each of these in a little more detail.

1. Cash-Flow

This is one of the most important areas. The lender is using a concept called Debt Service Coverage (DSC.) In simple terms, the lender wants to know that the business is producing enough positive cash flow to service the costs to run the business, provide an adequate income to the buyer so they can pay their personal bills and feed the family etc plus service the debt that will be incurred if a loan is approved. To use some numbers to provide a specific example, if the buyer of the business wanted to make an SBA loan that required an annual loan payment of $100,000 for the loan only, the bank would want to see the business generate a positive cash flow over and above all expenses to run the business of at least $120,000 per annum or at a Debt Service Coverage ratio of 1.2.

When deciding whether to lender money to the buyer of a business, the SBA lender analyzes the tax returns for all the businesses in which the borrower(s) owns 20% or more and the living expenses of each borrower and any sources of income.

All this information is considered within the time frame of at least the last three years so the SBA lender will need the buyer to provide 3 years of tax returns plus interim financial statements that are less than 90 days old.

2. Collateral

As the banks are primarily concerned with risk management, to protect the loan they may extend to the buyer, they look for collateral to take to support the loan. Collateral is simply an asset on standby the bank can take and seller if the borrower defaults on the loan.

When determining how much collateral is available, banks discount the property because they rarely get 100% of its value if the property is foreclosed upon. These reasons include that payments are usually in arrears, they will incur costs to sell the property such as agents and attorney’s etc. Typical discounts are 20% for residential properties and 20% for commercial real estate. Additionally, banks view properties ranging from easy-to-sell to difficult-to-sell. For example, factors that make properties harder to sell are: a) location, such as the property being in an outlying area, b) condition, might be old or not kept up, c) type, might be single purpose or raw land.

3. Credit

The credit of the borrower is important to the SBA lender. However, other areas of the business loan application need to be strong if the buyer’s credit report is poor. For example, if the business cash flow and collateral are strong, poor credit can often be overcome. If either of these areas are weak, however, the credit history becomes increasingly important.

Some banks focus on FICO scores, while others want to focus on the explanations to determine how much weight to give to credit issues. If you are thinking of applying for a loan to finance the purchase of a business, before you start looking for a business to buy, check your credit report and history are in order in case there are errors and you can therefore correct them.

4. Management Experience

In recent years, this area has become more and more important to the SBA lenders. Recent analysis of why business buyers failed showed that a lack of management experience in an industry was contributing factors. If the business buyer has not previously owned or managed a business in a particular industry may lead to a quick loan decline. Conversely, a buyer with the requisite management experience has shown the lenders that the owner has a greater chance to maintain revenues/profits at historical levels.

5. Liquidity

A business buyer needs to have a certain amount of money in cash to buy a business. The bank doesn’t want a hard asset used that needs to be sold so it’s critical that initial down payments be in cash. A borrower can borrow their down payment but this new loan payment must be factored into the analysis. Also keep in mind that different if you borrowing for a construction project, it may require even more liquidity to ensure the project’s completion. Finally, start-up businesses require significant savings to fall back upon and in the current economy are very difficult to finance.

Successfully applying for an SBA loan requires planning, attention detail, perseverance and follow up.

If you are looking to sell or purchase a business, you need the right professional advice for your situation and from someone that’s done it before. If you have questions or need more information, visit my website at http://www.RogersonBusinessServices.com or send me an email at info@rogersonbusinessservices.com

Related articles

• How to Finance Your Start-Up Without Tapping Home Equity (online.wsj.com)
• 10 Reasons Your SBA Loan May Be Declined (RogersonBusinessServices.com)

Selling a business or buying a business is rarely a simple and straightforward process. When I sit down and try to categorize each of those experiences, be it from my own personal experience as a Business Broker in Sacramento or the experiences I’ve heard from the 14 Business Brokers that are part of my office, the different experiences tend to fit into one of the categories below.

The seller expects to:

1. Receive all cash up front;
2. Provide one week of training;
3. Provide the buyer with one day to do their due diligence;
4. Close the offer the day after the completion of due diligence;
5. Be paid five to six times the business earnings or discretionary earnings.

The buyer expects to:

1. Buy a business with 10% down payment;
2. Receive two months of training free of charge from the seller;
3. Have four weeks to complete their due diligence;
4. Work in the business for 30 days to “test drive” it;
5. Pay no more than one year’s worth of business earnings or discretionary earnings.

About where the seller and the buyer meet:

1. The down payment from the buyer is about equal to the business earnings or discretionary earnings;
2. Seller provides some financing;
3. Seller provides two to three weeks of training;
4. Buyer receives two weeks to complete their due diligence;
5. It takes 45 to 60 days to close the transaction if things go smoothly;
6. The business is sold between one to three times earnings with many factors affecting whether it’s one or three times earnings or something in between.

A Golden Rule that I stress to both buyers and sellers is that the best way to get a deal done is to put yourself in the shoes of the other party. If you think about how the transaction impacts your side of the deal you will more than likely convince yourself that the other party is not offering enough. If this happens you are not ready to buy or sell. For a transaction to occur, there has to be a willing buyer AND a willing seller.

If you would like more information about buying or selling a business, visit my website; http://www.RogersonBusinessServices.com. Alternatively, I’ve written a book on each subject and these books are available from my website or www.amazon.com – Successfully Buy Your Business: Expert Advice from a Business Broker and Successfully Sell Your Business: Expert Advice from a Business Broker.

Are you looking for tips for a successful business loan? Money tends to rate high up on the list of needs for people planning on starting or moving into business ownership. Here’s 7 tips if you need financing for your business.

1. Clearly identify how much you have available.
The best place to start is yourself. If you have some capital available to invest in a business this is a great start as other parties you approach will take you more seriously. They will take you more seriously as they want to see that you have “skin in the game.” Once your position is clear, family and friends are the next to approach. If you say they have money make sure it truly is available. There is nothing more frustrating than approaching professional lenders with your well thought out business plan showing a clear financial plan that includes a partial capital injection from family and or friends. The lender then approves their loan subject to the other parties contributing but then everyone finds out the family and or friends have changed their mind and all the planning by all parties has been a waste of time.

2. Identify what you need.
How much capital do you need and why? Is it to buy equipment, buy inventory, pay a franchise fee, down payment on a business or cash to fund the business operation? There are different types of lenders for different types of loans. Get the “why” worked out quickly so you can find the right lender to approach.

3. Research your options.
There are different lenders that focus in different areas of the market. The obvious place to start is your local bank or credit union. Hopefully you have a good enough relationship to speak to the business development officer at your branch or be referred to this person. If this position doesn’t exist, ask to speak with the manager. If your bank can’t help, ask for a referral to a lender that can but make sure it’s clear why you need the loan so you are introduced to the right lender. If you’re still looking for options, the Small Business Administration (SBA) has a wealth of knowledge. Search online at www.sba.gov.  If you still need options, search the web focus on keywords that are specific to the loan you need. For example, if you need a loan for cash flow and have accounts receivable to use as collateral, use “accounts receivable loan” as your key words and you will come across lenders that provide factoring. Once you find some companies that can help, make sure you are comfortable working with them and research the full costs and terms of the loans.

4. Support your loan application.
Wanting the money for your business won’t be enough. Proving you need the money won’t be enough. A quality lender will want to see a business plan explaining how the loan will be used, a resume detailing ownership experience (and therefore the ability to repay the loan), education, credit history and most important of all in today’s economy, the appropriate management experience to run the business and therefore repay the loan. If you need help on how to write your business plan, look for the article I’ve written called “10 tips for your next business plan.”

Supporting your loan application also includes looking at your credit score and credit history. These two points are important. If your credit score is in poor shape and you can clearly explain why and the lender is comfortable with the explanation, they may approve your loan. For example, if you had an auto accident a few years ago that resulted in medical bills that are now under control, your poor credit score is explainable. Similarly, before applying for a loan get a copy of your credit report. Often there are mistakes on your credit report. Get these removed before applying for a loan so this problem is eliminated.

5. Build cash flow projections.
Lenders eat and sleep cash flow projections. This is what they do for a living. The stronger your cash flow projection the greater your chances of success in getting the loan approved. If this is not your strength, get help from your accountant or someone who knows and understands cash flow projections.

If you want some free tools to help put your loan together, visit my website www.RogersonBusinessServices.com/sample-documents and download item 4 which is a bank loan application form so you can see the questions they ask. Item 5 is a Personal Financial Statement while item 6 is a Loan Amortization Schedule that shows you how long and how much it will require each month to pay back a loan. Plus there are other options.

6. Sell your need.
Once you have the data built and ready to launch your loan application, practice your sales pitch. Don’t over embellish but be confident, know the ins and outs of why you need the loan and practice your response so you come off confident. The lenders aren’t looking for a sales pitch but they are looking to see that you believe and that if they need to escalate your loan request to higher management, you will present strongly and not have their judgment questioned.

7. Keep educating yourself.
As you work through each step of this process, ask questions. It’s amazing how options appear from places you least expect because you talk to a friend who knows someone at Rotary who specializes in these sorts of loans. Alternatively, they may not be able to help you with that loan but they can help strengthen you and your application so it gets approved…which is what this all about in the first place.

Obtaining a loan or finance for a business has been very difficult. Because the economy is stabilizing and government programs are beginning to have a positive effect, loans are available as long as you the borrower, present a professional business case.

Are their benefits of buying a business versus starting a new business? This is an article for business buyers. But it also helps the seller of a business understand what a buyer should look for when acquiring a business.

So you want to be your own boss. Consider the options – work as an independent contractor…start your own business…buy an existing company. Certainly there are pros and cons to each option. If you do a careful analysis, you’ll learn what many seasoned entrepreneurs have discovered…the risk-to-reward ratio is tipped in your favor when you purchase an existing business.

Admittedly, as an independent contractor, your risk is minimal. The up front investment and overhead costs are limited. However, without the ability to leverage the work of an employee base, the returns are limited by your own personal capacity.

Starting a business of your own can pay great dividends, but it’s important to understand that the risks are significant. Most start-up businesses will falter and eventually die. According to Michael Gerber, author of The E-Myth Revisited, 40 percent of new businesses fail in the first year and 80 percent fail within five years.

On the other hand, purchasing an existing business reduces an entrepreneur’s risk while creating opportunities for tremendous profit.

There are a number of reasons to consider the purchase of an existing business rather that starting one:

• Proven Concept. Buying an established business is less risky – as a buyer you already know the process or concept works. Financing a purchase is often easier than securing funding for a start-up business for that very reason—the business has a track record. A bank will be able to look at the historical results for the business, not just rely on projections.
• Brand. You’re buying a brand name. The on-going benefits of any marketing or networking the prior owner has done will transfer to you. When you have an established name in the business community, it’s easier to place cold calls and attract new business than with an unproven start up. That’s an intangible benefit that’s difficult to put a price on.
• Relationships. With the purchase of an existing business, you will also be buying an existing customer base and vendor base that took years to build. It’s very common for the seller to stay on and transition with the business for a short time to transfer those relationships to the buyer.
• Focus. When you buy a business, you can start working immediately and focus on improving and growing the business immediately. The seller has already laid the foundation and taken care of the time-consuming, tedious start up work. Starting a new business means spending a lot of time and money on basic items like computers, telephones, furniture and policies that don’t directly generate cash flow.
• People. In an acquisition, one of the most valuable and important assets you’re buying is the people. It took the seller time to find those employees, develop them and assimilate them into the company culture. With the right team in place, just about anything is possible and you will have an easier time implementing growth strategies. Plus, with trained people in place you will have more liberty to take vacation, spend time with family, or work on other business ventures. When start-up owners and independent contractors go on vacation, the business goes too.
• Cash flow. Typically, a sale is structured so you can cover the debt service, take a reasonable salary, and have some left over to take the business to the next level. Start up owners, on the other hand, often “starve” at first. Some experts say start-ups aren’t expected to make money for the first three years.
• Risk. Even with all these advantages, some entrepreneurs believe it is cheaper, and therefore less risky, to start a business than to buy one. But risk is relative. A buyer may pay $1 million, for example, for an established business with strong cash flows of approximately $200,000 to $300,000. A lending institution funds the transaction because historical revenues show the cash flow can support the purchase price. For many people, however, that is far less risky than taking out a $300,000 loan with an unproven concept and projections that may or may not be realized.

Becoming your own boss always involves a risk. When you buy a business, you take a calculated risk that eliminates a lot of the pitfalls and potential for failure that come with a start up.

If you have a question about selling or buying your business, give Andrew a call today at (916) 570 2674.

This article is reprinted as a courtesy of the International Business Brokers Association^® (IBBA.) IBBA is the largest international, non-profit association operating exclusively for the benefit of people and firms engaged in the various aspects of a business brokerage and mergers and acquisitions. IBBA^® has 1,950 members worldwide, with corporate headquarters in Chicago, Illinois.