I don’t really think our folks in Congress had those words in mind when they authorized the Small Business Administration back in 1953. But it’s pretty clear that was the essence of their mission. Since then the SBA has done amazing things to help small businesses in this country, and they continue to be a valuable resource for the segment of America’s economy that produces the most jobs, the most innovation, and the most economic growth of any nation on the planet (perhaps except for China the past decade or two).
Those of us in the advisory business know that a company that is launched by financially strong founders doesn’t need an SBA in the mix, and typically companies founded by previously successful business leaders don’t need it either. But most of the rest will struggle to adequately capitalize their companies to support infrastructure, product development, acquisition, and growth. One of our new clients, not well capitalized, just got a $2 million loan for their young business: low interest rate, no payments for 2 years, and 28 years to repay it. By contrast, another new client who were also undercapitalized – but felt trapped – opted for a hard money loan that will cost them about 40% in interest by the time it’s paid off.
What’s the point? New and emerging business owners who have not launched businesses or run businesses before don’t usually realize how much capital it takes to get the company generating enough cash to be able to finance its needs independently. That means a substantial amount of time is spent chasing dollars, making late payments to suppliers they need to survive, begging for a loan at a bank that isn’t interested in the gamble, or in many cases just folding their tent and chalking it up to a life experience.
It doesn’t have to be that way.
I’m not saying every new business should immediately head to the SBA. That wouldn’t work, and since most loans are made through a member bank, even the SBA would not fund unproven ideas. But given some reasonable preparedness this is an opportunity to get it right. A short action list of things to do before you apply:
- Have someone on your team who can speak credibly about the numbers and knows how to help you manage to them. Ideally that’s the founder, but frequently not. When a founder tries to get by without that knowledge, they usually stumble. You don’t want to stumble at the SBA’s front door.
- Get your historical accounting done right. Without it, you don’t know your business and neither will the bank. And even the SBA isn’t that soft.
- Build a credible forecast of what your business will do going forward. As little as a year of forward thinking will give you a wealth of good information and show you have done the homework. The bank and the SBA will appreciate that, and you can actually use the result to make your business better. No downside there.
That was not a commercial. But it could have been.
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