The right way to ask for a loan.
Small-Business SamaritanTallahassee banker James Dilworth is looking out for the little guys By Diane Hirth
In this teeter-tottering economy, you drive by a favorite lunch spot or watering hole one day and the next day it’s gone. Imagine the feelings of the small-business owner who is trying to hang on or the wishful entrepreneur who just wants to get started. Whether it is Tallahassee, Apalachicola, Crestview or Pensacola, communities need lots of flourishing local businesses for the jobs they provide and the character they lend to a place.
But just how is a small-business owner supposed to survive, thrive or get launched in these tight-money times? They may want to call someone like James Schulyer Dilworth, a Tallahassee banker for more than two decades who reinvented himself as a business consultant. Think of him as a sort of small-business psychiatrist, someone who can analyze what’s troubling your enterprise, how to fix it and, most importantly, how to get a loan from a bank to cure what’s ailing you.
"If you’re going fishing, you hire a guide for where the fish are," Dilworth said. "I have a number of fishing poles out there. I’ll walk the extra mile to help out. I want you to be successful. It’s nice to have an advocate in your corner."
His knowledge portfolio is fat. He knows the ins and outs of the U.S. Small Business Administration and has been busy dissecting the American Recovery and Reinvestment Act of 2009, the so-called economic stimulus bill, so he can squeeze out the most advantages for his clients. "The government raised the SBA guarantee (on some loans) to 90 percent," Dilworth said of the act. He added, "There’s millions and billions of dollars coming out of the stimulus package."
By late April, the SBA declared that stimulus provisions "aimed at restarting lending and getting much-needed capital in the hands of small business owners" were already having an impact, with the agency seeing some of its loan programs growing in volume by as much as 25 percent.
Locally, several bankers reinforce that their institutions are issuing loans to small businesses. Loan seekers with strong business plans and good collateral and/or capital have a good chance of reeling in money. Just don’t expect a bank to bend its lending standards to help you.
Lending? "Yes, we are. There is money out there for commercial purposes, but the terms definitely are tighter," said Erin Sjostrom, executive vice president of ProBank in Tallahassee. "The best advice is to make sure you have a good sound business plan for the bank to assess your ability to pay back the loan. The day of the exception is pretty much over. Unsecured loans will be few and far between at this point."
The advice of Wakulla Bank President Walter Dobson to someone eager to begin a business "would be almost identical without the credit crisis. We want our money back, so you have to show us how your new business with your resources has the ability to pay us back. Bankers, that’s what we do, that’s how we make a living. We still can make loans. Just not a dream loan, not a ‘I know nothing about it, but I want to do it,’ loan. We also would probably give you advice that starting a business is fairly risky, not all of them make it."
As for existing small businesses, Dobson said his advice for them is to build relationships. Bring their history to the banker they’ve been doing business with. "Develop a relationship with your financial institution from Day One. Keep them posted on how you’re doing," he said. Even if you don’t secure a loan there, you may get helpful advice, and then you can try elsewhere.
Why, then, bother teaming up with a small-business consultant like Dilworth? He is going to charge a fee and your money situation is already tight. Why not walk into the bank on your own? Well, ask yourself: Has your vision of your business been fully critiqued by an outsider, so you can make your best case to the loan officer? Do you have the right financial statements and best business plan possible for making your loan a slam-dunk? Maybe when money was free flowing, all that preparation was not as critical. But it’s not the same situation now.
Gene Jones, executive director of Southern Waste Management Information Exchange Inc., has been one of Dilworth’s customers in the past and is an enthusiastic fan of his abilities.
"I haven’t found anyone else in the banking industry who would go out of his way to think in the client’s interest," Jones said. What Dilworth helped Jones do was convert a recycling business from being nestled within Florida State University, in partnership with the Florida Chamber of Commerce and the state’s Department of Environmental Protection, to a stand-alone non-profit. "One of the things we struggled with as a small non-profit is, it was difficult to get credit. James figured out how to crack that nut," said Jones, who employs three full-time employees and several part-time workers. Southern Waste, Jones’ business, works with local governments, industries and entities, like the Florida Bar, on recycling opportunities throughout the southeast United States. Because Dilworth figured out how to generate cash flow, Jones’ enterprise is doing good things — diverting 98,000 tons of material from landfills and saving millions of dollars in avoided disposal costs. Someone like Dilworth "can look at your profit and loss statement and right away pick up what works and what doesn’t work," Jones said. "It’s like you go to a doctor for a check-up. More people need to do that."
Small-business owners may be too proud to admit they need advice in this upside-down economy. "I’m guilty of it myself sometimes," Jones agreed. "It’s a pitfall. A lot of businesses run into it. Sometimes it takes a little reality to show you can’t do it yourself."
Dilworth plunged into his own small business in February 2009 when he began his consulting firm. It gives him one more advantage, an insider’s view of the same uncertainties facing his clients — how to wisely schedule his time and money and make the right contacts to build his business.
"I know what that business owner is going through," he said. "I’m optimistic. If we all stick together in this thing, this is where small businesses survive."
BEFORE YOU BORROWFive things to do ahead of applying for a business loan:
1. Be prepared. Make sure you have all the necessary information ready to provide to the lender, including complete copies of business and personal tax returns, historical and up-to-date business financial statements, a current personal financial statement, a schedule of all business debts, current budgets and projections with assumptions.
2. Have a plan. Let the lender know what your business is all about, how much money you will need, what you plan on doing with the money, what collateral is available to secure the loan and how you plan to make money to repay the loan.
3. Consider hiring a consultant. A business consultant experienced in the nuances of obtaining lender financing will spend time with you in preparing the loan package, explaining your vision to the lender in the language they both understand and help you analyze and negotiate any offers made by one or more lenders.
4. Have capital. In applying for a loan you should be able to provide part of the funds necessary to start your business. Lenders will not provide 100 percent financing in most cases, so you will need to provide some money to assist the lender in helping you complete the project. How much depends on a number of factors, such as the project, collateral values, guarantor financial capacity, etc. And each lender can have different requirements. Here are some rules of thumb: land and building: 15–25 percent; equipment: 40–50 percent; working capital: 100 percent; closing costs: 100 percent. Contact the U.S. Small Business Administration for a list of SBA lenders in your area.
5. Borrow when you don’t need it. Think like a lender. When you are financially solid, profits and cash flow are positive, and your business is healthy, you may have lots of cash to pay for what you need. At this point, lenders tend to be eager to lend you funds. This is when you should borrow for legitimate business purposes or secure lines of credit, even if you don’t intend to use the line immediately. It will then be available to your business to help you weather the tough times.