You just have to go underground!
Bad news: I didn’t get start-up financing for The Crafty Branch.
Good news: I’m not done yet.
Some things to know if you, like me, want to go the traditional business financing route. It’s hard. This isn’t exactly news, I know, especially if you follow business blogs or magazine feeds (I find the Entrepreneur.com feed particular informative), but it’s not easy. Unless, of course, you already have money and just would rather start your company using someone else’s, then the banks are happy to work with you.
We all know that isn’t my situation, right? Moving on.
The first two local banks passed on my business plan and I wasn’t super surprised. After all, they told me up front that they usually dealt with the real estate side of commercial lending, but were at least willing to take a look and see if they could help me. They were very supportive of the idea and my planning, just not my financial state at the moment. Such is life. But it never hurts to try your local, community banks because they–by dint of their community bank status–have to reinvest a certain portion of their largess into their local community.
The third bank, though, was an SBA (small business administration) lender, so I knew I’d at least have a shot there, since they deal with startups more so than the others. Not surprisingly, that was immediately where the loan officer steered me and after he reviewed my business plan and plugged my initial numbers into their risk rating program (because that’s a thing, apparently), I passed initial review and he sent me the SBA application to complete and return with various supporting documents. It wasn’t a slam-dunk, he made no promises, but it was a step further than I’d gotten before.
Of course, that’s when Todd broke his wrist and we got a little side-tracked for a while. Such is life.
What IÂ knew going into the SBA loan process (from research on the SBA.gov site):
- The SBA doesn’t lend the money, they just serve as guarantor for the funds that the bank lends, up to a certain point (usually 80-90%, depending on what’s being financed)
- The lowest loan request that the SBA will entertain is $100K, so if you need far less than that, don’t even bother. I didn’t reallyÂ need that much, but with working capital included I was close, so I bumped it up to meet their minimums. In reality, I probably could have started up with around $60K if I were careful with the funds.
- Loan terms are governed by what is being financed,7-, 10-, or 30-years for start-up funds, expansion funds, or real estate, respectively. I knew that if I got the loan, the longest loan term would be 7 years, so I plugged that into an amortization calculator to figure out an estimated loan payment and interest for the 3-year projections in the business plan.
- The SBA ideally wants a 100% secured loan situation, be it by in-business collateral or personal property backing. This is where buying property as part of your business plan is a real help, if you can get a good enough deal. BUT! I also read on their site that if the application and plan were sound enough, they wouldn’t deny a loan solely for lack of collateral. I was kinda banking on this.
I thought I was pretty well prepared, overall, when I submitted my application. But what I didn’t know, hadn’t come across in my research, and would later spell doom for this process is:
- The SBA requires a secondary source of income, enough to service the debt outside of the planned use of the funds.
And even though Todd submitted his income information as part of the application (spouses of owners have to, as well as anyone who owns 20% or more of the company as a shareholder, etc.), it wasn’t enough to satisfy their requirements. So, since I didn’t have that secondary income source, the unsecured nature of the loan became the one-two punch that KO’d The Crafty Branch as written.
Amusingly enough, this news came the day before the stated grand opening specified in the business plan. I don’t think it truly counts as irony, but it’s damned dark as far as humor goes.
I had considered seeking investors instead of a bank loan, giving away a percentage of the business in the process, and thought I would pick up that thread at this point, once I’d given myself a few days to grieve. I also tried a couple of non-traditional lending options, but the downside there is that their quick responses are based on precious few factors, the strength of the business plan not being one of them. Basically credit score (mine’s actually still good, even after buying The Dollhouse last year) and credit usage (and that’s where my downfall is–it’s higher than the 45% cutoff they look for). Oh well.
And there are other great programs out there… if you already have business history to judge from. Since I didn’t have that, options like kabbage.com weren’t.
At this point, though, I was tired. Tired of groveling. Tired of asking someone else to give me freakingÂ permission to do what I knew I was fully capable of (funding being the only obstacle). And what do you do when you’re tired? You take a nap. You rest.
So I rested. And I pondered. And I decided that when I got up, I wasn’t going back on that same path.
So the store isn’t happening now, and probably not this year. And I’m okay with that. I’m okay with that because I have (and have always had) a back-up plan. More than one, actually, but what I’m going with is Plan C (or really Plan C+, because it’s evolved since it was originally thought up).
Plan C isn’t fully formed yet, it isn’t ready for launch just yet, but it’s an option that lets me do part of what I wanted, build it up, and use that growth to open the store, just a little farther down the road. Providing, of course, that a similar store hasn’t already opened in Thomasville. It’s a risk, it’s not like I get to call dibs, so I’ll continue to work towards that goal until I either reach it or it no longer becomesÂ feasible. In which case, dude, it’s not like I’m hurting for ideas to pursue!
More on Plan C later. First, though, I have a rant. A rant against despicable business practices and going against your gut. I just don’t have the end of the rant, yet, so, yay–something to look forward to for next week!Â But when we get past that, Plan C is good. It’s so cool and it’s going to be so much fun. And it gets me back to working on a somewhat abandoned project as well, which makes it feel all the more right.