Packagers lend a hand to
entrepreneurs seeking business loans
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
- Coach business owners on how to talk to bankers;
- 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
"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,"
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.
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
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,"
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
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
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.
Morris is a freelance writer based in Kentucky
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-- Posted: Aug.