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Packagers lend a hand to
entrepreneurs seeking business loans

Loan packaging can help you get that cashEven the greatest business idea can be spurned by a fussy lender if the paperwork is filled out wrong.

But small businesses short on i-dotting and t-crossing skills can still increase their chances of winning a loan -- through loan packaging services.

Loan packagers can:

  • Gather the necessary documents;
  • Make sure the financial information on the application makes sense;
  • Provide insights into specific banks' lending practices;
  • Coach business owners on how to talk to bankers; and
  • Suggest, in some cases, alternative financing.

Loan packaging services are offered by different types of agencies, including for-profit business consultants and nonprofit business development centers.

Insight into lenders
Because loan packagers have dealt with many lenders and have seen many loans, they can lend insight into the needs and limitations of lending institutions.

New entrepreneurs often don't realize that banks differ in lending preferences, says Catherine Simpson, executive director of the Fort Worth Women's Business Center, a not-for-profit small-business development center.

"Some won't fund restaurants, others won't fund gift shops, some will only do loans $100,000 and up. So many times, people's loans are rejected due to no fault of their own," she says.

Michele Angevin owned a personal chef and catering business when she sought the assistance of the Fort Worth Women's Business Center to help her secure a loan to open a restaurant.

Unlike many small-business people seeking loans, Angevin, who had worked as an accountant in the oil and gas business, already had a fairly developed business plan. "The center referred me to a counselor who was a banker. I got advice on debt ratios, down payments, what to expect when I went in and how to answer questions," says Angevin.

She visited six banks before getting a $85,000 low-documentation loan. She later borrowed $15,000 more. "Bankers have a number of loan types that they need to fit into their portfolios. I learned that some banks don't do small-business loans and others do them but weren't doing them at that time," says Angevin.

Explore different loans
Loan packagers also have insight into the terms and payments that banks will find attractive, says Rod Brechtl, president of Ameriwest Business Consultants Inc., a for-profit business consulting firm based in Colorado Springs, Colo.

"Terms make a difference. You may get a different response whether you are asking for a 10-year loan or a five-year loan with a three-year balloon," he says.

Another mistake is not knowing how much to request in a loan amount. "All lenders cringe when a potential borrower ask, 'How much can I get?'" says Jim Thomas, executive director of lending, business assistance and administration for Community Capital Development, a business development center based in Seattle.

Important questions

Loan packaging is an unregulated industry, so be sure to get satisfactory answers to these questions:

  • What is included in your service?
  • What is your success rate?
  • Do you specialize in certain kinds of loans?
  • How many loan packages do you put together per month?
  • How long have you been in operation?
  • What is your fee structure?
  • Can I speak with a client?
  • "Bankers aren't paid any more to hold the hands of their customers," observed Brechtl. "We see where the weaknesses in the application are and shore them up. We make sure that bankers see the numbers in a format they are comfortable with."

    "When you get loan application assistance from a business center, you get a better understanding of the process, a better prepared and more complete application, and more of a chance to succeed since we also have established lending institution relationships," says Simpson.

    Angevin says the Women's Business Center gave her the tools and advice she needed to come up with the right documentation, but by no means did the work for her.

    "They give you the tools to work with and you have to use these tools to meet your needs," says Angevin.

    What it costs
    The cost of loan packaging can vary depending upon where you go for the service and the complexity of the loan being packaged.

    Ameriwest's fees for loan packaging are in the $375 to $600 range. Brechtl says the company has two rate structures, $75 an hour for less-complex loans or a flat fee of between $300 and $500 for more comprehensive services. Ameriwest charges $150 to present the loan package to the bank on behalf of their clients. "If after three attempts with loan packages our clients fail to get the loan we refund 50 percent of what they have paid us," says Brechtl.

    Some split their fees, charging one sum upfront and another when the loan is won. Unsuccessful applicants then only have to pay the initial cost.

    Many small-business development centers, such as the Fort Worth Women's Business Center, charge nothing for their assistance, while other centers offer limited counseling services and refer more complex loan applications to third parties that charge a fee.

    Simpson says many first time business owners, especially women, are discouraged when their loans applications are rejected. "Listen to why you were turned down, fix it and come back again," Simpson advises.

    Ellen Birkett Morris is a freelance writer based in Kentucky
    If you'd like to make a comment on this story,
    e-mail bankrate editors.

    -- Posted: Aug. 25, 2000


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    See Also
    PLUS: Business plan key to getting a loan
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    Vision essential when drawing up a business plan (6/30/00)
    Financial projections should be realistic (4/6/00)
    Building a successful business plan (3/8/99)

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