What do we look for when considering a business loan?

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Congratulations.  You have a great idea for a business or for a business expansion.  Or, you may have found a business that you want to purchase or identified a franchise opportunity that is the perfect opportunity for you.  All that seems to separate you from your dream business is the financing required to grow it or get it going. 

Did you know that your local Community Futures office can help?

Community Futures have been helping small businesses to start or expand for over 25 years.  In fact, the businesses assisted by Community Futures have been shown to outperform a comparable group of non-CF assisted firms in terms of growth, survival rate and revenue growth.  What a great reason to contact us to discuss your business idea and learn about the types of supports we can offer your business.

When entrepreneurs first approach Community Futures, they almost always ask what Community Futures looks for in a small business loan application.  This is such a great question, that we decided to share the answer with you in this post.

Community Futures looks for:

1) A great business idea with the potential for growth and commercial viability;

2) A strong management team.  The management team can be comprised of the owners of the business and key management employees and/or contractors.  Successful businesses put into place the team that will achieve the key business milestones required for the business to be successful;

3) Demonstrated commitment to the project by the owners of the business.  Commitment is demonstrated through the following:

  • Demonstration of quality research and development of the Business Plan by the owners of the business; and
  • Demonstration of financial commitment to the business by the business owner(s).  Equity contributions to any successful loan project vary based upon the project application.  However, Community Futures normally looks for a minimum financial commitment of 10% of total project costs. 

4) A well-researched Business Plan.  This doesn’t mean your Plan has to be developed by a business planning professional or consultant.  It does not mean that the Plan has to be typed and bound.  What we look for is a Business Plan that provides the following key information:

  • Description of the project requiring financing
  • Definition of the size of the market and the estimate of the business’s expected share of that market
  • Description of the marketing strategy to be implemented
  • Projections of Income and Expenses for the first 1-3 years of the business
  • Projected Cash Flow for the first year of operations or for a period of 12-months beyond the month where the business projects to start and carry on the positive flow of canh in the business.  For most businesses, positive cash flow should be achieved no later than by the third or fourth month.  

5)Proven history of good credit by the owner(s) of the business. Where the business is already established, a sound credit history for the business must be demonstrated as well.

6) Community Futures is a developmental lender.  As a developmental lender, we partner rather than compete with conventional lenders.  Accordingly, Community Futures will require evidence that the business has sought project financing from a conventional lender before a Community Futures loan can be considered. 

One final thing to remember.  When you approach your bank of your local Community Futures office for a business loan, you are not asking for a favour.  A business loan is like any other business deal - it’s something you must professionally convince the lender to approve.  Knowing what your Community Futures office looks for in a business loan application will help you to prepare your professional business case in support of your loan request.

“I would borrow money all day long, if the cost of borrowing is less than the expected return.”
-
Brad Schneider

 


About the Author:
Jon Close,  Founding Executive Director  
Community Futures Network Alberta
September 1996 – February 2016

Jon founded the Community Futures Network of Alberta. In this role he provided strategic leadership, expertise and support as well as added-value to the Boards, Management and Staff serving rural Alberta through each of the 27 Community Futures organizations in the province of Alberta. On a macro-level, his role was also to partner in the provision of leadership and support the CF program as it operates across Canada.  From 1988 until 1996, Jon was the founding General Manager of a highly successful Community Futures organization based in Medicine Hat, Alberta and serving the south-east region of the province. The role involved providing community economic development leadership and support to communities within the region. As part of that role, the 20 person operation provided access to capital for SMEs, business coaching/training, as well as support with business planning.  Jon is now fully-engaged as Principal and Co-Founder of UpClose Team where he leverages his experience and skills as a communicator, trainer and coach to adding value and support to individuals, companies and groups. His focus is on personal, board and leader development. 

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