Finding financing: Options abound for Northern NV startups, entrepreneurs
Special to the NNBV
RENO, Nev. — The inability to secure financing has dashed more than one hopeful entrepreneur’s aspirations.
However, there are many avenues entrepreneurs can take to obtain financing, and oftentimes, experts say, it’s a matter of putting in the legwork to make sure the business is financeable.
Lending criteria for banks is pretty cut and dried. Rick Thomas, senior vice president and Northern Nevada executive for Nevada State Bank, says banks generally consider two primary factors when reviewing business lending applications.
The first is a primary source of repayment that shows historical and continued profitability, while the second is an additional source of repayment such as collateral and/or a guarantor.
Since every entrepreneur and business startup is different, however, Thomas says Nevada State Bank encourages entrepreneurs and fledgling business owners to speak with its bankers so they can explore individual business characteristics, as well as determine where entrepreneurs stand in their business cycles.
“We are glad to assist and explain bank financing requirements pertaining to your business and suggest options to help with decisions in establishing a path that would best qualify you for future financing,” Thomas says. “It’s like creating a roadmap for your financing journey. We can help you understand some of the milestones that are important along the way.”
Alternative lenders, meanwhile, have more leeway to provide funding or microloans — although borrowers typically pay higher interest rates as alternative lenders take on risker business loans.
‘We look at the big picture’
Jerrie Merritt, senior vice president and community development manager for Bank of Nevada and board member for Accion, says access to capital is the primary challenge for most small business owners. Securing a bank loan prior to having proven revenues and several years of business tax returns is difficult, Merritt adds.
Many small business borrowers in that position turn to alternative lenders such as Accion, a nonprofit headquartered in Albuquerque, New Mexico. The company is a mission-based lender that provides micro loans as small as $1,000.
Jeremy McVeety, community lending officer for Accion, says the company still considers the same factors as traditional lenders but can be much more creative in its underwriting since it doesn’t have to adhere to the lending regulations that govern FDIC-insured banks.
“We are able to tailor a solution to the needs of the business and take different circumstances into account,” McVeety says.
“We look at the big picture,” Merritt adds. “Our guidelines are different. The advantage of an alternative lender, small businesses will be able to get a loan they typically would not be able to get at a bank.
“We don’t just do loans; we are mission-driven,” Merritt says. “We sit down with small business owners, learn their products, and help them understand their cash flow and how to use their cash to become more bankable.”
Two types of entrepreneurs
Entrepreneurs seeking financing typically fall into two categories, says Jake Carrico, business development adviser with the Nevada Small Business Development Center. Some want to reshape the world with scalable technology businesses, while others are more interested in lifestyle businesses such as operating local retail shops or restaurants.
While the former typically requires angel and seed investment, others simply need a bank to provide capital to purchase equipment, secure a location and other capital-intensive needs.
Banks typically aren’t interested in high-growth tech businesses because their rigid underwriting criteria isn’t applicable to that model.
“It’s a lot higher risk, and it’s just not a sandbox (banks) play in,” Carrico says. “Those types of companies typically won’t get conventional or SBA loans.”
Regional banks and other lending organizations oftentimes do, however, provide the bulk of financing for budding small business entrepreneurs.
Entrepreneurs interested in opening lifestyle businesses such as restaurants or coffee carts have a range of options. Many times these early-stage businesses are self-funded until entrepreneurs can demonstrate to lenders that they have the depth of experience — and revenues — to take on bigger challenges and service potential debt.
On the other hand, small business owners who’ve been in the driver’s seat for a few years have a leg up on new business owners because they can show lenders documented key business metrics, such as average sales price, expenses, revenue growth and profit margin.
“That’s a good basis for a bank if a company is looking to move into a larger location,” Carrico says. “If they have got that track record and are looking to move into something a little larger, it’s easier to take that track record and extrapolate it to a new location.”
Set goals — and don’t be blind to them
Breaking their businesses down to these metrics also makes it a lot easier for owner-operators to determine if growth is trending up and make informed leaps of faith if they are trying to get a loan, Carrico adds.
Usually, if projections are done soundly and kept on the conservative side, entrepreneurs can find a bank that’s comfortable with lending.
Small business owners should set goals and make a roadmap to get there, he adds. Many regional organizations, such as the NSBDC, SCORE and others offer sound professional business insight to help entrepreneurs reach their goals by breaking them down into incremental and reachable thresholds. Meeting these goals can help entrepreneurs become more lendable.
“If you have a goal, set it and don’t be blind to it,” Carrico says. “Make sure you know what that new growth looks like, expected expenses if moving to a new space, and put yourself on a track to be able to have whatever down payment you’ll need for financing and actually transition into that new space if there are operational changes as well.”
Heather Ashbridge, who started with Nevada State Development Corporation in 2008, previously served in several roles with the organization, including assistant vice president and loan officer. She is based in NSDC’s Reno office.