SBA May Not Be the Answer
I received this email from my AllBusiness.com editor last week. The writer is in the process of opening a bakery and is seeking SBA loan advice.
Dear Blogger: I need some direction in acquiring a small business loan for opening my pastry shop franchise. I am a minority and I have heard that there are a good amount of SBA loan providers out there for minorities. I am currently training on everything an employee and manager does for a pastry shop, which includes baking, inventory management, and store management among all other things. For now, the way I see it, I currently only have around 40% of cash in hand that I need to open this business (which includes about 3 months of inventory), where I actually intend to only use 5/8 of it in opening the store, and the rest to keep in the bank, to ensure that my business will have enough operating funds after its first 3 months. Any insights on this will be greatly appreciated. Thanks, Angie
Dear Angie: The road to success in the restaurant, bakery or coffee shop business, unfortunately, is longer than three months. In actuality it may be more like three years. Your intentions and vision are commendable and I am sure that you have all the talent you need to make your venture successful. Yet, the main ingredient to a venture that grows flourishes and succeeds is the seed money that it takes to begin the venture. In order to raise any money to turn your dream into a profitable reality you will need a business plan that outlines the business for the first two years. You will need to include projections on a monthly and quarterly basis and a projected profit and loss statement. This needs to include payroll, inventory, waste, sales, and monthly fixed expenses. You will need to compile a product cost sheet and an inventory turn program outlining how quickly your inventory will turn.
Once you have this important document developed you can apply for an SBA loan at a bank that supports the Small Business Association lending institution. However, these are very difficult to acquire. Although the government paints a picture that you walk in with a business plan and walk out with a check, this is as far from the truth as it is to think that after a few months in business you will be rolling in dough. The SBA will need a plethora of forms and documents and frequently asks for some type of guarantee other than a signature. One avenue you may want to consider is to have the owner of the business finance the balance for you or co sign on a loan for you. This is a very frequent form of finance in the restaurant business and do not be afraid to bring up the possibility with the current owner. In many cases, that you will not understand for a few years or more, owners are anxious to get out of the situation they are in and would like to help someone new get into the situation. I know of three owners who currently would do anything to get out of their current ventures, including a simple sub lease of their businesses. The most important thing to remember is that passion and professionalism, mixed with good vision and a strong business plan will help make you a very successful restaurant owner. However, you may need to come up with a more creative financial plan than just applying to the SBA.
