WOMEN@WORK

Show me the money: Six steps to accessing credit for your business

Posted Oct. 13, 2011, at 6:40 p.m.
Last modified Oct. 13, 2011, at 9:25 p.m.

Entrepreneurs have big dreams, and big needs for funds to transform those dreams into reality. Whether you’re starting up or scaling your business up to the next level, credit and capital are critical to your success. These six steps — and sage advice from both sides of the lending equation — will help you make the most of your business.

Start with the plan

Lenders need to see your idea on paper before they can even consider your request. How much money do you need, what will that money be used for and where will the funds come from? Who is in your target market, how will you reach them and what other competitors are serving the same customers? How will you price your product or service, and what materials, vendors and distribution methods will you use to get your product to market? How many sales will you need to make each month to cover your costs, pay your loan and turn a profit?

Leverage risk by taking responsibility

You must take the lead in financing as well as operating your business. Your owner’s investment — typically at least 20-25 percent of your total costs — is a necessary step to leverage loans and investments from other sources. If you won’t take the risk, why should anyone else?

Assets matter

If you have equity in your home, funds in retirement and cash in the bank, that money talks. Even if you never have to tap them to support your business, your assets show lenders that, in a worst-case scenario, you have the ability to honor your commitment and pay off their loan. Similarly, income from other sources — a partner’s income, a part-time job or proven business earnings or committed contracts — shows your ability to make loan payments in a pinch.

Build good credit

If you’re upside down with debt or have a terrible credit score, clean up your credit before pursuing a business loan. A co-signer with strong credit may help your case, but your credit history determines availability of credit as well as interest rates.

Think big

Business capital is like gas for your car: it comes at a cost, but you won’t go far without it. Without sufficient capital, your business stalls. Many small-business owners stay at the start-up level because of their aversion to debt, their avoidance of risk or their desire to do everything themselves. Accessing credit allows your business to scale up in many ways: increasing production, moving into wholesale markets, hiring employees and expanding operations.

Start small

If you have poor credit, few assets, or limited income, don’t dismiss your dream. Many entrepreneurs bootstrap their businesses, starting with a one-person shop and scaling up as sales and profits permit. Programs such as Family Development Account matched savings can help you build assets, and training and resources such as those listed at www.MaineBusinessWorks.com can help you plan for success.

Two voices from the front line of business lending illustrate how small steps make a big difference:

Jon McLaughlin, executive director of Southern Aroostook Development Corporation, saw a need for a small pool to jump-start businesses that struggled to access capital through mainstream lenders. Through a partnership with Coastal Enterprises and a grant from Machias Savings Bank, he started the Southern Aroostook Microenterprise Loan Fund, making loans of up to $5,000 to entrepreneurs who weren’t bankable by other means. McLaughlin said, “It allows them to get a little start-up capital to get them started in the right direction, pay the loan back, establish credit and be able to borrow through conventional means in the future and expand their business.”

Paula Dahlk, owner of Custom Designs by Paula in Littleton became the first recipient of a SADC loan after working with Women, Work, and Community to develop a business plan for her custom-designed pinatas. “I was working out of my kitchen, and orders were overwhelming my life with my family. I started my business to pay my bills and support my family, but I couldn’t work efficiently in the space I had.” Her loan paid for materials to build a small shop, a copy machine to help market her business and manage her paperwork, booth fees for craft fairs and community shows and supplies to scale up her production of pinatas.

“Even though the loan wasn’t very large, for my family it was a big step. They trusted me even though I had no credit history, and now I’m building credit. I can do my work in my shop, and the loan has multiplied my business many times over.”

Erica Quin-Easter is microenterprise coordinator for Women, Work, and Community in Aroostook County, where she offers workshops and one-on-one assistance to entrepreneurs from Sherman to Fort Kent. Upcoming WWC classes in Aroostook County include the Credit Yourself workshop on Nov. 2 and 9, in Presque Isle. For more information, visit www.womenworkandcommunity.org, call 764-0050 or email erica.quineaster@maine.edu.

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