Start-up Business Loan – CDC Small Business Finance Corporation
The Start-up Business Loan offered by the CDC Small Business Finance Corporation provide start-up business funding for California Business in Imperial, San Diego, Riverside, San Bernardino Counties. Capital injection of 30% of project cost Small business borrowers need to invest some of their own money up front. As a general rule, 30% of the total project cost is needed and can come from the business owner’s own savings, home equity or a gift from another person. Half of this injection (or about 15% of the total project cost) must come directly from the owner’s own personal sources. The remaining 70% can be financed. For example, if $100,000 is needed to start a business, the owner will need to inject $30,000. Two years of experience in the industry Borrowers need to have a minimum of two years of experience in the industry in which they are starting the business. For example, if a person has managed a tanning salon for three years and now wants to open their own salon, they have the necessary experience to qualify for a loan. It’s important that the experience needs relate directly to the business being started. Having managed a tanning salon is insufficient experience to qualify a person to open a women’s retail clothing store. If a borrower does not have the required experience, but has identified a manager who has worked in the field for at least two years, this may mitigate the lack of experience. Reasonable credit The lender will review the personal credit of all principal owners that own at least 20% of the business, whether they work in the business or not. The lender wants to see that the borrowers are current in their existing debt, don’t have major derogatory marks on their credit report and, if there are delinquencies, a reasonable explanation as to why they occurred. If a borrower has a bankruptcy from the past, it needs to be 4-6 years old, depending on the loan product, and credit reports must not contain any delinquencies since filing. Collateral The loan will be secured by the start-up business and personal assets. If a borrower owns their home, they should be prepared to pledge it to secure the loan. Otherwise, business assets will secure the loan. Items purchased with the loan proceeds can also be used as collateral. The lender likes to get as close to full collateral as possible. This means they prefer that the value of your collateral to be equal to or greater than the value of the loan. Not having collateral does not preclude qualifying for a loan, but having it strengthens a borrower’s situation significantly. The higher the loan amount, the more emphasis the lender puts on collateral. Past income and other sources of income The lender will look at employment and wages for the last few years to ensure the borrower has historically earned enough money to cover personal living expenses. The lender will also review other sources of household income, including any outside employment, a spouse’s wages, child support, disability income or retirement. Any form of income from outside the business will strengthen a borrower’s situation as it shows that the individual is not dependent on a draw from the business to meet personal living expenses. Business plan, projections, assumptions that the projections are based on: A business plan, financial projections and assumptions on which the projections are based are all necessary. The business plan needs to be thorough and explain the business, who will operate it and how it will be marketed. Creating monthly projections for one year and annual projections for two more years is advised. The assumptions that helped shape the income and expense projections can be a one-page summary explaining how the figures were arrived at.