How does a small business get a bank loan these days?
Walker: Really spend time on straightening up your financials. Depending on the size of the company, you may or may not need audited financials, but you need to get a review of your financials for the last three years as well as get the books in order that are going to be appropriate for the financial institution you are dealing with. Secondly and again, what I have seen lately -- because the bankers have taken their relationship managers out of the market -- is that bankers want to know that there is a plan behind the business model. I recommend strongly -- we see it all the time -- there needs to be plan supporting the sources and uses of the capital they are requesting from the bank.
The use of alternative forms of financing, such as peer lending, has picked up. What are your thoughts on these alternatives for small businesses, and when are they appropriate?
Walker: I think they are very appropriate when you can identify how you want to use the money.
For example, industrial revenue bonds in certain states. In Massachusetts, if you're a light manufacturer you can get a 3% revenue bond and, quasi-public, you could get subsidized lending at lower rates for your business, which works very well. Another example: You can often subordinate to the bank if the bank didn't want to do all of the lending, meaning if you can identify another from of capital that is wiling to take a subordinate position it can really help you get more capital at better rates for your company.
The message is there are all types of lending facilities out there with better rates and better terms, so you have to spend a little bit of time sourcing the different types of capital right in your neighborhood. City and states have various lending programs that small businesses are just not aware of. If we were working with that business, one of the things that we would do is an analysis of the types of capital that's out in the marketplace.
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