Plenty of options for business owners to gain capital
Access to Capital
By Mike Danahey
When it comes to gaining access to capital, we asked local experts about the various avenues available for a variety of businesses and for pointers on getting loans approved. Here’s what they had to say.
Small Business Administration lending
Joshua Warner is Business Development Officer SBA (Small Business Administration) Lending Group with Wells Fargo Bank Commercial Banking.
“SBA loans can be used to purchase real estate or equipment, refinance qualified business debt, to buy a business or extend funds for working capital needs, or even to buy out an existing business partner,” Warner said.
All SBA loans have a government guarantee associated with the funds extended, Warner said. As a result, the interest rates and terms are often more attractive than alternative financing options.
Warner noted the following situations are ideal for SBA Financing:
● A business owner that currently leases space for their operations and would like to purchase commercial real estate to mitigate annual rent increases
● An individual interested in purchasing or starting a business and has direct experience in that intended industry
● A business with numerous debt obligations that could be consolidated under a single SBA loan for the purpose of lowering interest expense
If a customer can organize their documentation before engaging in the SBA financing process, this saves precious time and reduces overall headaches during the process.
“Securing an SBA Loan is not easy, and the level of complexity depends largely on the institution you are working with,” Warner said. “Each bank or private lender that is licensed with the SBA must marry their own internal credit policies with the SBA federal guidelines. This is what makes an experienced loan advisor so important to succeeding through the process.”
At the end of the day, each lender has their own niche within SBA that they are comfortable operating within. Partnering with a seasoned advisor that understands these niche’s and how to navigate them will take most of the pain out of the process.
“The SBA Process is complicated and relies upon the experience of the SBA specialist handling your request and their ability to communicate effectively. It is essential to have an early and open dialogue to quickly identify points of concern and ways to work through them. The more a business owner can openly communicate with their loan advisor, the better equipped that loan advisor is to assist throughout the process and ensure a successful outcome,” he explained.
Business lending
Eduardo Ponce, Business Development Officer, AVP, California Region 560 HomeStreet Bank said that currently the market for a business loan is very tough.
“And it will continue to be tough for business owners this year into next year,” Ponce noted. “It is more expensive to borrow money these days from their banks/lenders as opposed to a thriving and certain economy. Business owners should always have business credit available to them in these uncertain times.”
As such, a business should always consider what the loan is for and get the right type of loan for the right type of need, Ponce said.
“Most businesses take a loan and don’t apply it correctly to their business or business model. Hence, they should always consult with a professional for lending guidance,” he commented. “Getting the wrong type of business loan could hurt your business.”
Business owners should look at their loan options very carefully.
“There are many helpful resources available to businesses these days,” Ponce said.
Those include CPA firms, accountants, business consultants, advisors and local financial institutions such as HomeStreet’s branch in Panorama City.
He concluded with, “The best general advice I can give to any business owner is to always have a great relationship with your local bank. They can always point you toward the right direction with the right person that can help you and your business.”
Women and BIPOC
Luis Luna, Program Manager / Senior Business Consultant at Initiating Change in Our Neighborhoods Community Development Corporation (ICON CDC), noted that the Community Advantage Loan program, administered by the Small Business Administration, offers loans of up to $250,000 — specifically to women or minority-owned businesses.
“These funds can be used for a range of purposes, such as launching a new business, purchasing equipment or inventory, or covering other operating expenses,” Luna said.
ICON CDC is among places that provide businesses assistance with filling out the application, packaging the loan and seeking the lender that offers the program.
ICON CDC has a team of experienced business advisors who can provide support, Luna stated. The nonprofit also offers an entrepreneur training program designed for individuals who want to start a business but require guidance on various aspects, such as understanding their product, determining their business entity, and obtaining necessary licenses and permits.
“During this training, we also help entrepreneurs create a business plan to secure funding once the training is completed,” he commented.
ICON CDC is a particularly valuable local organization for women-owned businesses and individuals from low-income communities.
“Our team is also predominantly composed of women and people from these backgrounds. We recently hosted a successful event called ‘Breaking Barriers with Access to Capital,’ featuring a panel of women lenders,” Luna emphasized.
The event drew a large turnout, with 20 businesses in attendance and 15 others joining virtually.
There will be another such event at 4 p.m. May 31 at the ICON CDC Pacoima office.
“Like all of our events, this gathering will include a workshop and a networking opportunity, making it a valuable resource for businesses seeking to connect with other entrepreneurs and gain insights into accessing capital,” he added.
Hard to fund small businesses
While small businesses, especially those just starting out, may have a tough time gaining access to capital, the good news is there are resources available to help find funding.
“Fortunately, organizations like Initiating Change in Our Neighborhoods Community Development Corporation (ICON CDC) in the San Fernando Valley provide various small business services such as alternative financing options to access small business loans, technical assistance for developing business plans and improving financial management, and business training covering marketing, business planning and financial management,” Luna explained.
A small business may be hard to fund because of limited operating or bad credit history, lack of collateral and lack of financial records.
According to Luna, lenders rely heavily on financial statements to evaluate a business’s financial health, assess profitability, evaluate its present state and project future growth potential. Therefore, it is highly encouraged for small businesses to maintain accurate and up-to-date financial documentation to increase their chances of securing capital, Luna noted.
Other obstacles include limited access to traditional financial institutions, such as banks and credit unions, which often demand strong credit histories or collateral to have full access to their resources.
Small businesses may also face obstacles when seeking capital due to restricted access to essential resources and support.
Luna said Community Development Financial Institutions (CDFI) are good alternatives to consider beyond traditional financial institutions. They are designed to serve underserved communities, are often more flexible with underwriting to evaluate loan applications, are community-based organizations that have a better understanding of the local economy and often offer faster financing options.
“ICON CDC is an excellent resource for businesses in the San Fernando Valley looking for capital,” he said.
ICON CDC is a nonprofit community development corporation that’s been operating in the San Fernando Valley for more than 20 years. Its mission is to promote economic development and job creation by providing small businesses access to capital, technical assistance, and resources.
The nonprofit offers several services to small businesses for free, and provides hands-on technical assistance to small businesses with loan or grant applications, loan packaging, and financial statement assistance.
ICON CDC operates two City of Los Angeles Business Source Centers (North and South Valley). For more information, see https://iconcdc.org/.
Getting your business loan approved
Tamara Gurney, President and CEO Mission Valley Bank, explained a key first step when seeking capital for your business is knowing and understanding how important payment history is prior to applying for a loan.
“First, obtain a current credit report and make sure to rectify any outstanding obligations that are past due or delinquent,” Gurney said. “Next, make sure you have three years of tax returns or financials for both the business as well as the individuals involved in the transaction.”
She added that many small businesses tend to manage their bottom line for tax purposes which can cause them to be declined for a loan request.
“Always be transparent about things that are impacting the business and be ready to provide reasonable explanations,” stated Gurney. “Good business acumen demonstrating a solid grasp of your financials goes a long way in convincing a bank that you are a good operator and gain their trust.”
There are challenges to getting loans, and a primary one in California is related to earthquakes, fires and floods that have impacted the ability to obtain insurance coverages on many properties, she explained.
“As this relates to construction projects, oftentimes the stringent regulations in our state cause significant delays in obtaining permits and approvals which results in projects running over budget or not being able to be completed. In that regard, contingency planning and having adequate reserves is important to the loan approval process,” Gurney said.
As far as local organizations and networks that are available to assist, there are numerous options.
“One can go to a CDFI (Community Development Financial Institution), and there are at least 10 CDFI’s in Los Angeles alone,” she suggested, adding that TMC Community Capital, AltCap, Lendistry and Accelera Financial are CDFI’s that assist borrowers who need a micro loan or might not qualify for a traditional bank loan.
“Mission Valley Bank uses these partnerships to assist clients and prospects in obtaining the financing they need along with training to help them become bankable in the future,” she noted.
Other resources include The Women’s Business Center and LA Business Source Center which offer monthly training and forums where they teach business owners how to successfully apply for a loan.
Community Development Centers (CDCs) are another great resource to both banks and borrowers that require assistance getting a loan approved.
“SBA 504 loans are handled by CDCs in partnership with banks,” Gurney said.
At the end of the day, though, a potential borrower’s best resource should be the bank’s relationship managers.
“They will assist in advising and coaching the clients throughout the entire transaction, ensuring a smooth application process,” she concluded.
