Getting cash for your first major purchase
Grants are rarer than unicorns, Ask FSB's experts say. Here's what you need to get a loan.
(FORTUNE Small Business) -- Dear FSB: I'm looking at buying a building in Dallas and have picked one out. I just started my LLC here this year, though I've been self-employed for 13 years in New York. Is there anything I can do to make sure that I can get the loan? Would I be able to get a grant? Are there any good books that you would suggest? The loan would be for $250,000. My credit score is 780. I do not own a house, but I do not owe any money. Thanks.
- Marc Taylor, Dallas, Texas
Dear Marc: There is no perfect/bullet proof strategy/method that guarantee lenders will give you a loan.
"It all comes down to your ability to express to the lender, in simple terms, what the money is for: a plan," says Alfred F. Luhr III, senior vice president of business banking at M & T Bank in Buffalo, N.Y.
"A business plan won't guarantee you'll get a loan, but I can guarantee you won't get one without one," says Skip Honigstein, assistant director of the Service Corps of Retired Executives (SCORE) district office in Orlando, who teaches business planning workshops.
Through your plan, you must demonstrate your knowledge of the business and your ability to either manage the business yourself or surround yourself with people who can manage it.
"It takes both for banks to feel comfortable," says Honigstein.
The plan should also provide a timeline for starting and growing your business and solid, well-documented financial projections.
Write as much of your business as you can yourself before seeking help from others, Luhr suggests. Doing so better prepares you to communicate your special needs clearly with a lender.
"And know your personal financial history before going in to talk to the lender. Are there any tax problems? liens? That knowledge will give you a leg up," he says.
Shop around. "Ask banks for their recommendations," Luhr says. "A lot of times there are different economic development and SBA program with preferable rates that you might be able to take advantage of. Ask what sort of programs you qualify for."
If you plan to occupy at least 51% of the building you're purchasing, you might qualify for a loan for up to 90% of the value of the building through an SBA 504 loan, says Honigstein.
Depending on where your building in located in Dallas, if it's in a blighted area, the state, county or city might offer economic development assistance, says Bill Morland, a SCORE business counselor in Orange County, Calif.
As far as grants, "unless you operate a 501(c)3 or are doing something that meets some kind of public policy goal, they're very, very difficult to get," says Honigstein.
"We constantly get asked the grant question," says Morland. "There are no grants."
People often hear about free money from late night TV commercials or from a friend of a friend, but there is no free money.
"Sure, Congress passes a lot of grant programs," says Honigstein, "but then they never fund them."