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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.
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.
Sincerely,
Richard
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.
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or representations about the accuracy, timeliness or completeness
of such content, advice or the answers provided to you. Our content,
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Your financial situation is unique, and our content, advice and
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