Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: THURSDAY, April 11, 1991 TAG: 9104120044
SECTION: NEIGHBORS PAGE: S-3 EDITION: METRO
SOURCE: MAG POFF STAFF WRITER
DATELINE: LENGTH: Medium
Joseph Tatum, vice president for commercial lending at Dominion Bank, said the first question he asks a budding entrepreneur is "Do you have any experience in the business?" He wants a brief resume of education and experience.
Someone with a career in plumbing, for instance, is more likely to get a loan to start his own plumbing business than he is to open a gift shop.
Calvin Lilly, senior vice president at Central Fidelity Bank, looks for a well-written business plan and a resume showing experience in the same line of business.
"The success of the business is first derived from the capabilities of management," Lilly said. That's even more important than an appropriate financial structure.
Financing a business is no different from buying a house or a car, Lilly said. The bank expects the owner to make a down payment by putting up some of his own money.
The money is proof that the person planned his start-up, setting aside money over time, Lilly said. Besides, no business can succeed if it's 100 percent leveraged, he pointed out.
Lilly and Tatum agreed that a business owner is usually required to put up 50 percent of the cost of opening and running the venture until it can turn a profit.
Tatum said the amount might be lower if an experienced person is buying an existing and proven business. But it won't be less for a start-up proposition.
Lilly said the entire amount need not take the form of cash. About 25 to 30 percent of the owner's share must be in cash, he explained, but the bank might accept a deed of trust on the owner's house for the balance.
An applicant for a small-business loan, he said, must pledge inventory, equipment and receivables as collateral for the bank loan. Lilly said the owners must give their personal endorsement as well, meaning they will be responsible for repayment if the business fails.
Tatum said people should know the answers to a lot of questions before they go to a bank. If you write out the answers, Tatum said, the bank will know you are thinking through your problems.
What products will you sell? How many customers exist for the product, and who and where are they? What is the demand for the product and how will you create more demand? Why is the proposed location favorable?
You should know how you will structure your business: sole proprietorship, partnership, corporation or S-corporation. Why have you chosen your option? How much money do you need and for how long? For what purpose will you use the money? Do you have the income to repay the loan?
The bank will ask you for personal financial statements and projections for a new business over the next two to three years. If you are buying a business, you will need financials and tax returns for the last three years prepared by a certified public accountant.
Lilly advised seeing a CPA as the initial step in setting up a new business. People don't want to spend the money, Lilly said, but a CPA will provide the ideas, structure and financial information that will save money in the long run.
Tatum said the bank can help customers determine whether they qualify for a loan guarantee through the Small Business Administration. The paper work can be done at the bank.
He has also prepared lists of capital items needed by various businesses, but which people often overlook. Tatum said people also must consider operating expenses for a new business, such as rent, advertising, supplies, taxes and insurance.
Growing a business takes cash, Tatum said, because money gets tied up in inventory and receivables. A business person must be able to distinguish between profit and cash flow.
A new business takes three years to evidence a trend toward success or failure, Tatum said. He advised owners to track financials every month to turn up problems because a year is too late for taking stock.
by CNB