1.What
are the different ways to finance my business?
2.Is borrowing the best way to finance my business?
3.How much should I borrow?
4.What is the longest term you can offer on
a loan?
5.What if my monthly cash flow cannot meet the
monthly payment under the maximum term of 12 years?
6.What do lenders look for when assessing a
loan application?
7.What types of collateral would you accept?
8.My credit history is not so good. Can I still
apply for a loan?
9.What is a good business plan?
10.What type of financial projections do I
need to prepare?
11.What are SBA loans? Do you process SBA loans?
12.What are the eligible uses of the loan proceeds?
13.How do I apply for a loan?
14. Do
I have to become a member of one of your credit unions
before I apply for a loan?
15. What
are my other options if I don't have sufficient collateral
to offer?
1.What are the different ways to finance my business?
There are basically three ways to finance your business:
a. Equity investment - Funds coming from either your personal
resources or funds raised from other investors who may require
a minimum rate of return at a certain point in time.
b. Debt - short-term or long-term loans carrying a certain
interest rate and should be repaid at a predetermined period
of time.
c. Internally generated funds - Net profits earned by the business
in the past are normally accumulated and reinvested into the
business.
2.Is borrowing
the best way to finance my business?
As a general rule, lenders would like to see that you
have put up a sufficient amount of financial commitment
into the business in the form of equity investment. Ideally,
this ranges from 20% to 50%. Also, if you have an existing
business, profits generated from the past are usually
put into productive use to support the operations of
the company. Traditionally, a loan is viewed as an option
only if these two sources of funds are not available
but financial experts suggest that a balanced combination
of all these three sources is most ideal.
3.How much should I borrow?
Come up with a detailed budget for your start-up business or
expansion project. On one hand, prepare a list of the actual
money on hand that you expect to invest in your project as
well as other expected sources of funding. On the other
hand, outline how these funds will be used in your business/project.
The uses of funds
would include (1) Hard costs such as leasehold improvements,
machinery and equipment, furniture and fixtures, etc.; and
(2) Soft costs which may consist of payments to contractors
or architects and other service providers, securing licenses,
permits, and other similar expenses. If this is a start up,
you may also want to provide for several months of working
capital to acquire initial inventory, pay first few months
rent and operating expenses until the business is financially
capable of sustaining itself. Add these all up to get your
total project cost.
Compare
the total uses of funds (or the project cost) against the
funds you already have on hand. The balance will either have
to be borrowed or raised from investors.
4.What
is the longest term you can offer on a loan?
The maximum term that the credit unions can extend is 12 years,
depending on the purpose of the loan and the cash flow projections.
5.What
if my monthly cash flow cannot meet the monthly payment
under the maximum term of 12 years?
We can adjust your monthly amortization such that it matches
your cash flow and lump the balance as a balloon payment at
the end of the 12-year period.
6.What
do lenders look for when assessing a loan application?
Loan applications are evaluated based on the five C's of credit:
Character - Character and commitment of the
principals/ borrowers/ company.
Capacity - Includes both debt repayment
ability (as evidenced by historical financials, cash flow
projections and the credit history of company, principals,
guarantors, co-signers) and managerial capabilities of
owners and management team.
Collateral - A pledge on business assets
or personal properties to secure or back up the loan request
Capital - The equity
contribution or financial investment of the owners. This
is usually 20% to 50% of the total project cost for start-ups.
Conditions - Considers the competitive
environment, any specific trends in the industry or the
general economic conditions in which the business thrives.
7.What types of collateral would you accept?
Real estate property, machinery and equipment, and any other
business assets including but not limited to furniture and
fixture, inventory, receivables, etc. A personal guarantee
is required from individuals owning 20% or more of the business.
On a case-by-case basis, a co-signer may be required.
8.My
credit history is not so good. Can I still apply for a
loan?
We do not immediately dismiss people with less than perfect
credit record. We will try to work with you and explore other
options with you. You may pursue your loan application
with us as long as you have no outstanding past due obligations,
judgements or tax liens.
9.What
is a good business plan?
A good business plan should be concise, sound, feasible and
realistic. There are several resources available
that provide assistance in conceptualizing and writing business
plans as well as preparing financial projections.
10.What
type of financial projections do I need to prepare?
We require financial projections for the next 12 months (broken
down monthly) and should include the income/expense statement,
cash flow statement and balance sheet. You should also state
your assumptions clearly in a separate section and be prepared
to justify these assumptions. Overall, it should be sound and
realistic. (See small business resources for
assistance on projections)
11.What
are SBA loans? Do you process SBA loans?
SBA loans are guaranteed by the US Small Business Administration
(SBA) but are funded, processed and underwritten by various
financial institutions that are certified or preferred SBA
lenders. Our credit unions are certified SBA lenders.
12.What
are the eligible uses of the loan proceeds?
Loans should be used to grow your existing business or start
a new venture. The proceeds can be used to finance leasehold
improvements, acquisition of equipment, furniture and fixtures,
and working capital. We DO NOT fund any form of losses,
past due obligations, tax liens, idea conception or initial
product development phases.
13.How
do I apply for a loan?
Prior to submitting a complete loan application, we suggest
that you first submit to us your financial projections and
business plan (for startups) or executive summary (for established
businesses) for preliminary screening. If there is an
interest to pursue discussions regarding your loan request,
we will contact you and ask you to submit other necessary documents
listed on the checklist and
fill out the loan application
forms. You may choose to fax or email your completed application
package or apply online through our secured site.
14. Do I have
to become a member of one of your credit unions before
I apply for a loan?
Upon
applying for a loan, the loan applicant is encouraged but
not yet required to become a member of one of our participating
credit unions. However, this will be a requirement
before the closing and disbursement of the loan, if approved.
15.
What are my other options if I don't have sufficient collateral
to offer?
If your business
is located in a low to moderate income census track, you
may be eligible for the Capital Access guarantee program
which would guarantee up to 20% of your loan. Call
NYCfNAC for more info about this.
