This article continues the series of articles discussing different issues and angles for entrepreneurs/business owners looking to expand their business and obtain business financing. Most small service companies have very similar problems as retail and manufacturing companies. Lack of capital and a need for further development and strategic growth. Equity capital or cash flow funds are the most difficult type of loans to obtain through institutional lenders. At the same time this is the most important type of financing that offers opportunity to grow and expand the business quickly.

Most entrepreneurs running service oriented business do this for various reasons. The most attractive points about service oriented companies are: small overheads, orientation on fixed costs monthly expenses, potential to generate higher revenue multiples without substantial increases in costs. Lenders offering small business loans and operating lines really like the above features of the service industry. Our company worked with the following segments of the service industry: financial companies and management consultants, legal service companies, law offices, IT services, senior services, newspaper and magazines, social media, dentists, doctor offices and orthodontists.

Business owners seeking expansion have very different capital requirements. So when planning further development and strategic growth it is very important to keep in mind what is possible to achieve from institutional and private financing sources. Well prepared development budget, business plan and marketing plan is always an asset. Our knowledgeable associates will help you to concentrate on the areas that really work and makes sense both from increase in sales and ability to obtain financing through small business loan programs.

Since small businesses are “small”, the request for financing has to concentrate on the areas that will yield the biggest possible return that is justified by the practice and industry statistics. Entrepreneurs can’t possible follow all of the trends and stats even in their own segment. Therefore financing budget and use of proceeds should be assigned to professionals who do this every day – like our firm. This step will save the business owner a lot of time and hassles. Most small business loan lenders rely on government guarantee to fund small business; it creates a very picky environment and substantial level of difficulty in obtaining such a loan. It’s very important not to shop the loan in multiple organizations simultaneously. Small business loans lenders like to be “lenders of choice”.
Each type the business owner applies with a new organization, his credit is pulled and new lenders can see all other institutions who reviewed this deal over last several years. Obviously once the underwriter at the bank sees that there were 3 other banks that pulled entrepreneur’s credit report recently and did not approve the deal, the chances being approved are becoming less likely. Bear in mind, the banks are getting extra careful when they hear “working capital” being included in the development budget. Very rarely can a small business qualify for it and in order to get this done, a professional team needs to be involved with existing relationships helping to drive the project to success.

Some clients also think about venture capital opportunities. Unfortunately VC firms are even more skeptical on small operations. Even if venture capital firm decides to come into the deal, the business owner gets up to 5% of equity left post financing in his control, which completely removes the point of financing sometimes.

On the other hand small overheads and ability to control the costs while growing and expanding rapidly makes service industry super interesting. On many occasions our lenders when facing a choice which deals to approve, they would take 5 out of 10 service companies and much less manufacturing companies. When applying for the business loan, a properly prepared budget and business plan in hands of seasoned professional like with our firm is half of the job. Patience thorough the process is the second half as application might take 4-6 weeks to be processed by the lenders.

As usual we wish Happy Financing every one and advise to contact us for any questions or comments!

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