Latest / Let's Talk Small Biz Finance with CIC Tucson / How to Secure Business Funding without Using Personal Credit | Coffee Chats with Caroline Nelson
Transcript
- Caroline Nelson: Hello and welcome to this month's episode of Coffee Chat. We are really excited to have you joining us today. My name is Caroline Nelson. I'm the Chief Operating Officer at Community Investment Corporation. I'm joined by my colleague, Brandy. Brandi Szymanski: Hi, I'm Brandy Samansky. I'm the Rural Lending Manager with CIC. Caroline Nelson: Brandy, thank you so much for joining me for version two of today's Coffee Chat. Brandi Szymanski: Round two, I love it. Caroline Nelson: In case you happened to catch the live version earlier and you're wondering, this doesn't sound like what I ⁓ this morning, that is correct. It is not. ⁓ is our first time using this software and trying this new format. And it quite go exactly as we were hoping. So we are recording a second time. Brandi Szymanski: Technology is fun. Caroline Nelson: always a learning curve. So topic was submitted by a listener ⁓ and is how to obtain business funding using personal credit. This question to me be interpreted in ⁓ two different ways and I'm not sure what the intent of the listener was. ⁓ so one option is how to obtain a business loan without someone checking my or without having to sign a personal guarantee. Or the other interpretation could be how do I obtain a loan for my business without taking out a personal loan? those are actually both great options to explore. So we're gonna do that. We're gonna dive into each of them. So let's take the first question and break that down. Brandy, why do lenders pull personal credit ⁓ when a loan application, right? Like if I'm applying for a loan for my business, why do I, the business owner, ⁓ need to be included, like my business is a separate entity. Brandi Szymanski: Essentially when lenders are looking in business, can't separate you from your business. You are your business. when they are looking at your credit, they are looking to see how you've dealt with debt in the past. They are looking to see if all your payments are current. They are looking to see what kind of balances you're carrying. They want to make sure that you can afford to take on a loan payment. ⁓ ⁓ Many traditional banks also have minimum credit scores that you're going to need to meet to be qualified for a loan. Alternative like CIC, on the other hand, don't have requirements on scores. ⁓ We really just looking at the history. We get that life happens, emergencies come up, medical bills happen, what have you done since that incident to get back on track? Caroline Nelson: What is a personal guarantee? Brandi Szymanski: Generally when I'm explaining a personal guarantee to people, let them know that it states that they are personally liable for that loan. They're on the hook for it too, not just their business. Caroline Nelson: Something I like to share, or I think is helpful to share too, a spouse often will need sign a personal guarantee. And this may come as a surprise to any business owner taking out a loan their spouse is not involved in the business. ⁓ And the reason for this is that you often have joint assets and so your needs to be aware that these assets essentially are being used to guarantee the loan. ⁓ But what happens now is your spouse is also personally responsible for making sure this loan is paid back. really, a personal guarantee is necessary if you want to take out, is often necessary if you want to take out a business loan. It's not typically something that can be negotiated, but should sign personal guarantees cautiously. It's kind of like, it is, it's co-signing for a ⁓ loan. you're just cosigning for your business loan versus like cosigning to help your friend buy a car. And so if you are going to be signing a personal guarantee, make sure that you've thought through your loan request and that you have a plan for how this is going to help your business grow. Because ultimately, if the business does not perform as you expect, you personally are responsible. so this debt doesn't just go away. ⁓ continues with you in your personal repayment history. So if we look at the other interpretation of this question, how do you take out a business loan without using personal debt? Many businesses start out using personal debt because they're not eligible for business loans. ⁓ could be because the business is new or it's not yet profitable. ⁓ mean, this often looks like someone may be using their personal credit cards or taking out a personal loan. ⁓ the reason for this is when your business is new or if your business isn't profitable yet, ⁓ are spending more money than you're making, there is not some information for a lender to make a decision on. And so this is why your personal debt comes into play because they're looking at your history, like your other income or your other household income. And is what is being used to make that decision. So Brandy, ⁓ what should businesses be keeping in mind when they're preparing to apply for funding or maybe they're not ready yet, but how can they set themselves up for success one day? Brandi Szymanski: There's a couple things that they can definitely do. Maintaining separate business and personal financials. Keeping your business bank account separate from your personal. Don't commingle funds. Another big one would be paying down your debts. That's to help when we look at your credit report. And that's to show us that you have the ability to take on that loan payment if those debts are being paid down. It's going to show the ratio between your income and your debt. The other piece filing taxes. ⁓ A lot of go and file taxes and and they're writing off everything that they can. And if it is a true write-off, that's great. at the end of the day, if you're writing off more than you should be, it looks like your business isn't making money. ⁓ when lenders are looking at your taxes, they're looking at what's on the taxes, and that's what they're using for underwriting. So keep that in mind when you file your taxes. You're gonna need to be claiming what you're making if you're gonna end up taking out funding. The other piece is maintaining the financials. Your profit and loss statements and your balance sheets, if you're unfamiliar with those, we'd be happy to talk further with you on those. getting QuickBooks, if you can get a bookkeeper, ⁓ I highly recommend it. Caroline Nelson: Yeah, I appreciate that you brought up business financials. So in our episode last month, we took a deep dive into funding options and how to determine when you're ready to apply for a loan. So if you didn't catch episode last month, definitely check it out. We'll put a link to it in the show notes. But I mentioned the word business financials, and someone later asked me what exactly that meant. And in the industry, probably in any industry, we throw around these jargony words. assuming everyone knows what they earn it. And I learned last week that business financials, that not everyone understands what that is. essentially it's how we track our business money, what we're making and what we're spending. And all businesses use different words ⁓ to do that. And so in industry, you will hear people say profit and loss statement. So a profit and loss statement tells us how much money we make over a given period and how much we spend over a given period. ⁓ And at the end of the day, is our business profitable or are we losing money? Our balance sheet tells us at a given moment in time what we ⁓ own. So like how cash do we have? What assets do we own, right? Vehicles, inventory, things like that. ⁓ And then what do owe? So if we have loans, if we owe bills, if we owe taxes, things like that, that is what shows on our balance sheet. And so this in the is referred to as business financials. When we talk about business financials, think through how you are keeping track of what you make and what you spend in your business. if you're not keeping it in a more formalized way, ⁓ Brandy talking about, definitely reach out. We'd be happy to talk that through with you. We also have taught some classes in the past. We have some links on our YouTube page that you can visit to learn more about. We have talked about over the last couple questions some challenges businesses face in obtaining funding, especially if you are brand new and you don't have history that can be used to a loan ⁓ maybe if your business just isn't profitable yet. In order for a loan to be approved, your business has to be making more money than it's spending. And so if either one of those options aren't available you, ⁓ then may have a hard time obtaining a loan. so if that's the case, I want to share an option for you and that's crowdfunding. So crowdfunding is a way collect money from a large number of oftentimes like through small amounts, but collectively we come together and fund a loan. And so one platform to consider is Kiva. So Kiva is a global crowdfunding platform. They offer loans up to $15,000 at 0%, which 0 % loan is really incredible. Startups are eligible. So at any stage in your business journey, you're eligible. ⁓ the way crowdfunding works, it uses your network. So you start off by sharing this request with your network, your friends and your family. They get campaign started. And then once you reach a certain number of funders, then it moves to Kiva's global platform. It's really cool see how many people, like hundreds to thousands of people come together ⁓ to support a And so if this is something you're interested in or you'd like to learn more about, is the local Kiva Hub for Southern Arizona, so you can reach out to us. ⁓ to share more, see if it's a good fit for your business or you can visit kiva.org to learn more about crowdfunding. All right, Brandy, I have one final question for you. a business would to start ⁓ networking their ⁓ or they to build local connections, how should they go about doing that? I you work in the rural area, so you're out in all these communities all the time. What advice do you have? Brandi Szymanski: I would say definitely start with your local chambers. They already have an amazing network in place. Go to those events. Business owners get to connect with each other and be a support system for each other as well in space. Another great resource is our local small business development centers. All of these are gonna be connected to your local community colleges. So like for Pinal County, that is going to be your Central Arizona College. ⁓ Kevin is there, he is amazing, great guy, wealth and knowledge. There is Pima SBDC based in Tucson, but also serves Santa Cruz. We have the Community College SBDC, ⁓ is there. They actually are building their team up right now, which is exciting. And then we have Eastern Arizona College that serves Graham and Greenlee. they are actually all launching their ⁓ builder program, which is an amazing free resource for entrepreneurs that are just starting or still looking to grow and scale their business. It's in person ⁓ and I think it's generally like six to 13 weeks. I think it varies from location, but definitely worth looking into if you're looking for resources. Caroline Nelson: are some great options. Thank you. I think it's also important to note from a lending perspective, it is really to have local, well, from any perspective, but ⁓ it's to have local connections. In today's a lot of our banking is done, ⁓ a lot of financial transactions are done online. We don't have relationships with our lenders, with our bankers, with our investment managers, ⁓ whatever it is, it's all self-serve. And while that makes our life easy, it is really hard to build a relationship with someone. And so in years past, you had to go into your bank and you got to know everyone who worked at the branch and they got to know you. And so you built that relationship. when it comes to obtaining funding for your business, when you're applying for a loan, especially when you don't have that track record behind you, ⁓ more risk involved. And if the company doesn't know they may not be as willing to take that risk. And so encourage you to look your local community and find out what credit unions you have, what local banks you have, what local lenders you have, ⁓ and out to them and start building connections. It requires little more intentionality, ⁓ but ⁓ open bank account with your local credit union, start meeting them, and then growing from there. We are finding some of the local institutions do have products specifically for their customers. because of that relationship. And these might not be products that you would be eligible for if you were just walking in on the street. So definitely put some thought into that and try to get to know those in your community who can also support you. All right, I think that answers our question for today, Brandy. Is there anything else on your mind that you'd like to share? Brandi Szymanski: ⁓ just that every business is different. They're all in a different situation. And so having these conversations with your bank, with your lender about ⁓ the right fit is for you and where you're at is gonna be different for every person. So don't be afraid to have those conversations. We're here to be a support for you. Caroline Nelson: That's a really great point. right, well that concludes today's coffee chat. Thank you so much for joining us. Brandy, thank you for recording with me twice today. Also out to our producer, Tina, ⁓ If there is a topic that you would like to know more about, please let us know. We have ⁓ a... link in the show notes for a form you can submit if there's something you want to know more about. We're happy to cover it in a future episode. We are also, as Brandi said, here to be a resource for you. So please do not hesitate to reach out. Happy to have a conversation about your business, what your needs are. We can provide you with community resources or help you with anything you need. All right. Thank you for joining us today and we'll see you next month.