Money – we all need it, especially when we’re growing a business. The problem is, most of us wait until we need extra cash to figure out funding, and that’s usually too late. Navigating this process can seem tedious, but armed with the right knowledge and resources, you can make your money work for you. Sourcing and qualifying for business capital is vital for success, and take it from me, you want to get organized before you need capital.

Qualifying for Business Capital

In Part I : Don’t wait until it’s raining to get your umbrella, I share my experience of qualifying for a small business loan from the SBA when we purchased the commercial building that is now the Always This Good Retreat Center in Phoenix. We’d prepared for the process for years and it was still a year-long sh*t show. We would not have been successful if we hadn’t put in the work ahead of time.

Finding Sources of Business Capital

In Part II: Understanding the Types of Business Capital, our friend and founder of Savery Consulting, Mary Savery, shares your many options for business capital, and what you’ll need to do before you seek funding for your best shot at success.

qualifying for business capital for commercial real estate purchase

Part I: Don’t Wait Until it’s Raining to Get Your Umbrella

by Jennifer Maggiore, CEO, Always This Good

Making landlords rich

I started my business out of my home office in 2005. Taking on a lease seemed like a huge burden, and I avoided it for a while. But there came a time that I could no longer deny that I needed a place to meet with my team and clients. Through the years, we’ve leased a few different suites as my team (and budget) grew. But, early on, it occurred to me that I was making my landlords rich, and just like a home is an investment, I began fantasizing about investing in a home for my business.

Since having kids, my husband and I consolidated both our businesses into one large suite (it’s another story for another time, but it was one of the best decisions we’ve made). When our lease came up in 2019, my husband and I decided to renew for another three-year term. We weren’t quite ready to purchase a commercial building, but we knew we were close. We started having preliminary conversations about what we’d be looking for in an office space,  and soon had a mile-long lost of criteria. Giving ourselves time to dream was crucial for manifesting exactly what we wanted, though.

For the next two years, we worked with Kelsey, our Director of Operations, to focus on qualifying for business capital in the form of a commercial loan. We structured the application such that a newly formed holdings company, owned equally by my husband and me and financially backed by our two businesses, would apply for the loan and own the building. We wanted to ensure that our financials were in order from the start – data was correct, Balance Sheets and P&Ls were ready to share with lenders, and we showed plenty of profit. We knew it would take a while, and at the start of 2022, we started doing our research and decided that an SBA loan would best fit our needs. To apply for this type of loan, we actually had to take out two loans. The bank we used for our business banking would fund a portion of the amount we’d need to purchase a building, and then we had to work with a privately owned bank that represented the SBA for the balance of the funds.

Getting the green light

By the end of that January, the lender at our bank looked everything over and thought we’d qualify with no problem. We got the green light to start looking at properties. Soon after, we found the one available property in Phoenix that “checked all the boxes” on that mile-long list of criteria – indoor and outdoor event space, offices and training room, a space that could be converted to a full kitchen and laundry room – all in a charming little residential neighborhood not far from our home. It truly was everything we were looking for. Once we identified what is now the Always This Good Retreat Center – a rundown private school that would need to be torn down wall-to-wall and floor-to-ceiling, allowing us to truly make it our own – we made an offer.

After some negotiations, we came to terms with the seller who accepted our offer in mid-February. Great, right? What ensued next was a literal year of jumping through financial hoops. It soon became normal to wake up daily to email requests from one or both banks asking for a statement, financial report, some clarification, or additional info. If you’ve ever met Kelsey, you know she runs a tight ship. Despite our preparation and being incredibly organized, the application process gobbled up entire days of back and forth emails or researching answers to their questions and providing business plans.

On top of that, unfortunately, the bank that represented the SBA was challenging to work with. They were disorganized and often repeatedly asked for the same documentation from us and our bank, and rarely communicated proactively. But, just before Independence Day, we were approved, and Joe and I celebrated closing on our first commercial purchase. But, because our construction funding was rolled into the SBA portion of the loan, the lending process wasn’t over for almost an entire year.

Six months of renovations squeezed into 60 days

A frenzied demolition began – by then, we’d run down the clock on our old office lease and needed to be in our new offices by September 1. Let me tell you, if a marriage can survive six months of renovations squeezed into 60 days, completing two separate loans, going way over budget, and a massive move from our office suite to our new building while the kids are out of school in the sweltering Phoenix summer, well, it can survive anything. We continued providing documentation, contractor invoices, and information we’d already provided (over and over).

There was so much more to this process that I won’t get into here – including a massive error on the SBA bank’s part. We had to push the issue for them to correct to their error – including a call with the SBA bank’s lender and executives. Side note: if you ever find yourself on a call with a half dozen bank executives, it’s because they know they’re wrong… And then, this past spring, a year from the start, we got our final docs and signed on the dotted line. Then they found another error and we signed on the dotted line, again. 🙄 AND THEN we were done! 👏

It was an exhausting, and at times, frustrating experience, but we’re thrilled that we saw it through and made our dream a reality. I could not imagine how we’d have made it across the finish line if we hadn’t been preparing in the years leading up to this process. Even with easily qualifying for a loan on paper, this process was arduous. I learned a valuable lesson – we had to prepare before we needed money to qualify for it.

Financially worried and uncertain

According to the National Council on Aging, half of American women over 25 do not consider themselves financially secure. The results of their survey go on to say that most women are “worried” and “uncertain” when it comes to retirement, “and a third of low-income women are “terrified.”’ Let that sink in. Most of us are terrified about our financial futures.

As women, we often struggle to understand our financials and control our money. There are many reasons that this dynamic exists. But, bottom line, the way we approach our personal power is often an analogy for how we approach our money. So, if you don’t have power over your money, take control now, sister. As my husband’s grampy – a man who came to this country with nothing and built an enduring legacy – used to say, “Banks will give you an umbrella when it’s sunny, and want it back when it rains.” Don’t wait until it’s raining to get your umbrella.

Part II: Understanding the Types of Business Capital

By Mary Savery, Founder, Savery Consulting

There’s a smorgasbord of capital options to power your business forward. Let’s explore the most common ones:

1. Business Loans: Traditional but effective, these loans can be sourced from banks, credit unions, and other financial institutions. The key is to shop around to find the terms that best suit your business and ensure that your personal and business credit scores are in good shape.

  • Credit cards offer greater flexibility and protection but come with steep fees and interest rates.
  • Installment loans offer a lump sum in exchange for payments over time.
  • Revolving credit line loans allow you to make purchases and pay down the loan, similar to credit cards.
  • Floor planning, floor plan lines, or flooring lines are similar to revolving lines but are used to purchase inventory, which becomes the collateral for the loan.

2. Angel Investors: More than just a capital source, angel investors often come with a wealth of business acumen that can prove invaluable. In return for their expertise and cash, they take equity in your company.

3. Crowdfunding: An innovative way to raise capital without surrendering equity in your business. It’s about rallying a large group of people, usually through an online platform, to back your vision. You will need an existing audience and great PR plan to make this work.

4. Grants and Awards: This no-strings-attached capital is awarded to businesses with a unique proposition or societal benefit. You get the funding you need without the obligation to repay.

5. Venture Capital: Venture capitalists seek businesses primed for quick growth. They inject capital for a return on their investment, making this a high risk, high reward option.

Identifying the Right Capital for Your Business Journey

Familiarizing yourself with the various capital types is your first step to powering your business. Yet, the pivotal question remains – which one is right for your unique entrepreneurial journey? The answer hinges on several factors – your inclination to take on debt, surrender equity, or neither. For instance, if debt is a deterrent, consider equity injections from angel investors or venture capitalists. If ceding ownership is your concern, debt injections (loans) or government grants could be your go-to options. You’ll also want to consider if you’re willing to take on a partner in the form of an investor.

Understanding Your Current Financial Health

The hunt for capital begins with a clear insight into your current financial health. If seeking a loan, assess your personal and professional credit and savings – do they indicate the ability to repay? And, evaluate your comfort level with the idea of equity sharing if considering venture capital or an investor. These are key questions to ponder before you embark on the capital quest.

Knowing your business goals and the capital required to achieve them is integral to aligning the funding type you need with your objectives.

Gauging Your Risk Tolerance

Risk accompanies every capital type. Understanding your tolerance for risk can help you choose a capital type and amount that’s comfortably within your risk range. By carefully assessing your business’s unique requirements and your own comfort levels, you can select the most suitable capital type to fuel your business journey.

Gearing Up for Capital Qualification

Regardless of what type of capital you choose, remember that lenders and investors alike are on the lookout for promising risks. They’re not just investing in your business, but in you. So how can you prepare to meet and exceed their expectations?

The Power of a Compelling Business Plan

Take a deep dive into your business strategy by crafting an inspiring and well-rounded business plan. This document should echo your vision, objectives, market analysis, financial forecasts, and marketing tactics. Your business plan is your calling card – it tells potential investors and lenders who you are, what you plan to do, and how you plan to achieve it. Don’t forget to include a compelling background that explains why you started the business and your passion for what you do, which helps demonstrate your commitment to success.

Your Credit Score: A Major Player

Expect your credit score to be in the spotlight during your capital-seeking journey. Brace yourself for both a business and personal credit evaluation. If your company is relatively new and lacks a credit history, your personal score becomes the star of the show, and you’ll likely be asked for a personal guarantee – a promise to repay even if the business fails. Bear in mind that traditional financial institutions, like banks and credit unions, seldom green-light small business loans if your score dips below 700. On the other hand, some online lenders tend to approve a broader range of scores but interest rates and fees may be higher.

Financial Statements: Document a Healthy Business

Get your financial statements in order as soon as possible and keep them updated. Prospective investors and lenders will review your balance sheet, income statement, and cash flow statement to assess your business’s financial health. If you find yourself fumbling with the numbers, don’t hesitate to seek the expertise of a Certified Professional Accountant (CPA). Accurate, updated financial statements can build trust with investors and lenders and tip the scales in your favor.

The Importance of Having an Abundance Mindset

Finally, let’s talk about mindset – specifically, an abundance mindset. This is a belief that the world is abundant with opportunities for everyone. In the context of sourcing capital, it’s about believing that there are ample opportunities to secure the funding you need.

Conversely, a scarcity mentality views life as a zero-sum game – if someone gains, others lose. This mentality can inadvertently hinder us from achieving our goals. Remember, mindset shapes our reality and plays a critical role in business success.

An abundance mindset can positively impact various aspects of our lives – our physical health, emotional well-being, relationships, and even financial decisions. Shifting from scarcity to abundance might be challenging at first, but with practice and intention, you can foster a mindset of abundance that helps you to stay resilient through this process for the long run.