Loans ready for right projects
By ANDREW ROCHE
(FEB. 16) - As the economy grows, it is natural that many small businesses attempt to expand with it.
Not everyone, however, has the free cash to do so, without some assistance. Small businesses need loans.
But to whom do they turn - and how can they improve their chances of getting that loan?
"Plan, plan, plan," said Robert Koch, senior vice president and senior lender of Florence Savings Bank. "Know what it is going to take to make something work," he said.
Such advice is gospel for bankers. "The first thing you should do is prepare a business plan," said Larry Molloy, senior vice president and senior loan officer at Easthampton Savings Bank.
What one needs when looking for a loan depends on whether the loan is for a new business, or expansion for an old one. According to Koch, for a start-up business, one needs a "reasonable business plan," financial statements showing resources, and the ability to demonstrate a knowledge of the field.
Businesses looking to expand, Molloy said, need a business plan with projections for the next 3 to 5 years. "You would normally want to work with a good accountant," he said.
Just as important is a business's track record, which includes at least three years' worth of financial statements and tax returns. "If the business has had credit, we check to see how that credit was taken care of," said Molloy.
Fortunately for business owners, the economy doing well and banks are eager to get money invested in the region's businesses. Easthampton Savings Bank had a 96 percent loan-approval rate last year, and Koch estimates that Florence Savings Bank approved between 60 and 70 percent of the loans sought.
Still, good times can't last forever. Eight years ago, for instance, Edward de Varemmes, owner of The Breeders' Choice in Northampton, was trying to expand his business.
"It was a different economy back then. ... The banks wouldn't talk to me," he said. As a result, he had to get through "by my bootstraps."
Recruit a banker
Aside from planning, are there particular steps a business owner should take to prepare for getting that loan, especially when times are not so good?
Kevin Michelson, owner of Kar Sales in Hadley Center and also Kevin's Auto Repair and Kar Towing, has some suggestions.
When a person is trying to start a business, he or she should develop a link to a primary bank, Michelson said. "Get to know (your bankers) on a first name basis." The better they know you, the fewer questions they will have which would stand in the way of an approval.
Michelson also recommends finding a commercial loan officer "who's been there for a while. ... You want to know he'll be there" years down the road, and it is helpful to know someone in the bank who has authority.
Further, he suggests sending records and reports to the bank even "when they're not asked for," such as when one is not searching for or paying a loan.
Victoria White started her own business, the Internet Connection in Northampton, three years ago. She had inherited money at the time and did not need a loan. But six months ago, she decided she needed a line of credit for large purchases.
"Even though I was established, it was really scary," White said. "I wasn't anticipating the depth of (the paperwork)," she said.
"The most important thing is to do it," White said of the paperwork involved in the loan process. It allowed her to take advantage of a good business opportunity. But she advises that one look around for the best deal. "Not all banks treat small businesses the same."
William Rogers, third-generation owner of F. J. Rogers Co., a bicycle and sporting goods store in Florence, agrees. "You've got to shop around," he said. It isn't the interest rates which vary, however, but the conditions attached to the loans, such as the collateral different banks demand.
White likewise did not place much importance on interest rates as much as customer service. She noted that the Bank of Western Massachusetts gave a series of free seminars from summer 1996 to early 1997 for women small-business owners that she found helpful.
Other small-business owners emphasize that entrepreneurs ought to take advantage of such conferences and lectures sponsored by local business groups before diving into a new business or expanding. Jo-An Courtemanche, owner of Fresh Air, a gardening service in Hatfield, suggests checking out the many seminars that organizations such as Chambers of Commerce host for business people.
Another such organization is Business for Social Responsibility, which has a Valley chapter. It runs a regular lecture series at the Hotel Northampton.
At the chapter's meetings, there is a lot of peer interaction and networking, said Christine Pourier, part-time administrator of the association.
Help from UMass
Applicants that Florence Savings cannot approve, Koch said, he often refers to the Massachusetts Small Business Development Center, whose administrative center is located at the University of Massachusetts. It has five regional offices throughout the state.
"We try to help (business people) to understand how to better operate their businesses," said the center's director, John Ciccarelli. Counseling is free and available to almost all small businesses that need assistance. The center also works closely with the state Small Business Administration to secure loans for women and minorities.
Ciccarelli said that the emphasis of the counseling is on putting together a solid business plan. He said that most new small-business people underestimate costs and overestimate sales. "They don't really understand cash flow in the early stages. ... The bank wants to see where the cash is going."
Still, assembling a smart-looking business plan will do little good, if it is clear the project won't work.
"Cash flow is king," said Koch. "Invariably, it has got to be there."
Originally printed in the Daily Hampshire Gazette on February 16, 1998.
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