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Steve Windhaus Ask the Small Biz Adviser

Small Biz Adviser: Startup help for a disabled vet

Dear Small Biz Adviser
I am starting a new business venture, one that I can do with respect to my disabilities. I have a problem concerning my current credit rating. It is less than perfect. This was due to a divorce and loss of income, due to a medical condition that leaves me unable to continue in the trade that has been my sole means of income for 25 years. I have been subjected to reports of late pays and a couple of write-offs within the last four years.

First, about the business: I am fortunate in that I have an investor who envisions the potential of my venture. He has agreed to partially fund my startup. I have poured my limited assets into this project. I have forecast the need for additional funding for development and operating expenses. I will soon be out on that proverbial limb. I have secured agreements with the manufacturer of the equipment required for this business (wholesale rate). My forecast for the period of development is no more than 60 days, with the stand-alone point within 9 months maximum.

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At this point, the business should be on track, providing for any necessary operating costs, debt repayment, including income and reinvestment of income, as a self-sufficient entity.

Now, about me: I am a 44-year-old, Vietnam-era veteran. I also am a qualified disabled American (per Americans with Disabilities Act guidelines). Any advice, direction or help would be greatly appreciated by me.

Dear Richard:
Typically, I have difficulty giving lots of hope to people starting up a business venture. Commercial lenders do not like to finance startups due to the high risk inherent in most of them.

But in your case there are some significant advantages and opportunities:

  • Your disability.
  • Your veteran status.
  • Previous entrepreneurial experience.
  • Personal capital investment.
  • Additional financial backing.
  • The problems regarding your credit rating.

The U.S. Small Business Administration offers the Handicapped Assistance Loan Program (HAL-2) for which the following will be of importance to you:

  • The business venture must be for-profit and must qualify as a small business under SBA guidelines.
  • The business cannot be engaged in speculation or investment in rental real estate.
  • Ownership must be 100 percent by a handicapped individual or individuals.
  • The handicap must be of "a permanent physical, mental or emotional impairment, defect, ailment, disease or major disability."
  • You must demonstrate your handicap does not prevent you from adequately competing against like businesses where the ownership is not handicapped.
  • You must actively participate in the management of the business.
  • HAL -- Two loans issued through banks can be as high as $750,000. However, loans direct from the SBA are limited to a maximum of $150,000, but with an interest rate of only 3 percent. You can't beat that.

There are other issues, but review them at the Web site.

There are no SBA-direct loan programs available for veterans, but veterans are provided priority status in receiving direct assistance from SBA field offices, counseling, training assistance and priority processing of any SBA-sponsored loan application.

Most startups have no previous entrepreneurial experience. That apparently is not the case with you. However, if you have not been successful in the previous venture, it will be necessary to explain the circumstances under which your difficulties arose. And you need to indicate what actions you would take to prevent a repeat of previous failures. Do remember that so very many successful entrepreneurs did start with failed ventures.

You already have invested personal capital in this new venture. That is important when approaching a bank. No bank wants to finance the total startup cost. Typically 30 percent to 50 percent needs to come from sources outside the bank. And your outside funding source can only enhance your opportunities when applying to a bank. However, you want your backer to be an active participant in soliciting the loan. The bank will obviously want to know why the backer is willing to partially finance your startup. Furthermore, your investment plus the commitment from the backer dramatically reduce the bank's exposure.

Finally, bankers have told me bad credit ratings are a solid reason to decline a loan application. However, bankers will make exceptions in cases where applicants have demonstrated that the problems were beyond their control.

Richard, do not misunderstand me. You do have challenges to overcome, but there are many factors in your favor that most startups cannot provide to a bank loan officer. So keep up the good fight, have a positive attitude and don't forget your well-prepared business plan.

-- Posted: Jan. 9, 2001

Bankrate.com writers base their answers on our editorial content and advice of financial professionals. We make no claims or representations about the accuracy, timeliness or completeness of such content, advice or the answers provided to you. Our content, advice and answers are intended only to assist you with your financial decisions. However, by its nature such information is broad in scope. Your financial situation is unique, and our content, advice and answers may not be appropriate for your situation. Accordingly, we recommend that you get different opinions and seek the advice of your accountant and other financial advisers before making any final decisions or implementing any financial or investment strategy.


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