How to Start or Grow your Rowan Business

The Small Business Center at Rowan-Cabarrus Community College can help you start a small business or grow an existing business with a plan of action for lasting success.  The Rowan-Cabarrus SBC offer seminars and services at no cost and free confidential one-on-one business counseling.

The Rowan-Cabarrus Community College Small Business Center (SBC) Services include seminars, workshops, and courses for small business owners and prospective owners.  Customized training and development are also available. If you would like to know more about how RCCC’s Small Business Center might benefit you or would like to be on our mailing list, please contact our office at 704-216-3534 or visit our www.rccc.edu/sbc.

The Rowan County Chamber of Commerce is a not-for-profit, private, community development entity organized under the state laws of North Carolina.  Our Internal Revenue Service classification is 501(c) 6 and we are a business organization. The Mission of the Chamber is “to enhance quality of life and nurture a thriving economy through pro-active and consensus-building leadership”.  Our objectives are:

*To promote and advance the industrial, commercial, agricultural, economic, civic and social welfare of the people of Rowan County;

*To encourage the growth of existing industries and businesses while giving all proper assistance to any new firms or individuals seeking to locate in the Rowan County area;

*To support all those activities believed to be beneficial to the community and area and to oppose those which might be detrimental;

*And, in general, to promote the welfare of all area citizens, following always those policies intended to accomplish the greatest good for the greatest number.

Any firm, individual, association, corporation, partnership or estate having an interest in the above mission and objectives shall be eligible to apply for membership in the Chamber.  Membership investments are determined by the Chamber’s Board of Directors and we currently have about 900 members.

The government of the Rowan County Chamber of Commerce is vested in a 21-member Board of Directors who are elected for three-year terms by the membership.  The Board also consists of officers as well as certain ex-officio directors at the discretion of the Chair of the Board.  The Board adopts policies, rules and regulations for conducting the business of the Chamber.

The Chamber’s Program of Work, or “What We Do”, is reviewed annually and approved by the Board.  Chamber projects, activities, etc. are categorized by “Divisions” with volunteer committees which do the bulk of Chamber work.  As stated earlier, we are membership-based and, therefore, volunteer-driven.

The Chamber’s activities are many and include those which develop the Small Business, Industrial and Agriculture communities. 

Federal, State and Local issues are of extreme importance to the Chamber including legislation, regulations, elections, transportation and other infrastructure issues.

The Chamber also is a strong advocate of education and developing community leadership.

Finally, the Chamber is a catalyst, partner and coalition-builder for many activities and organizations.  We also serve as the “front door” to Rowan County by handling its visitors, telephone calls and mail.  Additionally, some 100,000 visitors annually go to our website.  The Chamber of Commerce is an excellent source of information for visitors, business travelers, newcomers and new businesses.

In its capacity as a community development organization, the Chamber works with and is a member of both the U.S. Chamber of Commerce and North Carolina State Chamber.  We also maintain close relationships with Federal, State and local governments and agencies. 

The Rowan County Chamber of Commerce has for many years been the vehicle for the business community to be a strong advocate and major force in the economic growth of this county.  It fills that role today and will continue to do so in the 21^st century.

INTRODUCTION

The Rowan County Chamber of Commerce and Rowan-Cabarrus Community College recognize that small business is vital to the continued strength of our local, state, and national economies.  In fact, 90% of all businesses across the U.S. have fewer than 20 employees.   In RCCC’s two county service area there are 8,780 businesses, of which 98 percent have fewer than 100 employees.

For many small business owners, knowing where to get appropriate information is a common problem.  This information is designed to be a guide through the preliminary stages of starting a business and to provide information about the various regulations that will affect you and your business activities. 

QUESTIONS TO ASK YOURSELF BEFORE GOING INTO BUSINESS

Going into business requires certain personality traits and attitudes, particular training and experience, and an ability to learn.  Consider these questions before you make the decision to start a business of your own:

 1.       Have you ever worked in a business similar to the one you want to start?

 2.       Do you like to make your own decisions?

 3.       Are you able to take responsibility?

 4.       Are you a good organizer?

 5.       Are you ready to put in the long hours that might be necessary?

 6.       Are you prepared to stick with it through the rough times?

 7.       Do you have the physical stamina to handle the work load and schedule?

 8.       Do you have the support of your immediate family for at least the first year?

 9.       Are you prepared to lose your savings?

 10.     Can you prepare a detailed, credible business plan for the first three years?

 Note:  A good strong, “yes” answer to all of the above questions is needed if you expect to be successful in your business.  

FINANCING

          After you have made the decision to start a business and have prepared a business plan to determine the amount of money needed for its operation, it will probably be necessary for you to obtain outside financing.

          Your loan request should include these basics:  

1.       A loan request summary, including the name of the borrower, the purpose, the amount you need to borrow, the terms, the collateral, and the guarantors. 

2.       A two or three-page description of the business. 

3.       The education, experience and management capabilities of the owners and key management. 

4.       A personal financial statement on all company owners.

5.       A list of all items serving as collateral for the loan.

6.       A list of the proposed uses for the borrowed funds.

7.       A line item list of how much is needed to start the business (including borrowed funds).

8.       A list of all the sources of funds that will be used to start the business (including the borrowed funds). 

9.       A projected cash flow statement for two years, and beginning ending balance sheet for two years. 

TYPES OF LOANS

TERM LOANS:

A term loan refers to any loan with a maturity of greater than one year, a monthly payment amount paid out of the firm’s excess cash flow.  The amount of money available for debt repayment can be determined by projecting future cash flow for a two to five year period.  Term loans may be made to qualifying businesses for many different reasons, the most common being:

·       The purchase, expansion or modernization of facilities, equipment, etc.;

·       The refinancing of present debt; or

·       To replenish working capital depleted by previous expansion.

SEASONAL LINE OF CREDIT:

A true seasonal line of credit is used to finance short term, cash shortages in the normal course of business.  There should be a direct relationship between fluctuations of inventory and/or receivables and the amount of borrowing.  In order to determine the size of the line of credit, you will need to provide the bank monthly or quarterly financial statements and any other information considered valuable in evaluating seasonal trends.  Pay drawn on the seasonal line should occur at the low point in the business cycle (when the amount of inventory and receivables are at their lowest level and cash is available).

NON-SEASONAL LINE OF CREDIT:

In some special cases borrowing under a credit for other than seasonal needs is acceptable if the need is short-term, recurrent in nature, and if there is a reliable source of repayment.  Normally, this type of lending is limited to a few special types of business operations such as finance companies, real estate mortgage warehousing, large construction companies and utility companies.  There is usually more risk involved in non-seasonal lines, in that they are not self-liquidating in nature.  Repayment is dependent on the firm’s ability to generate adequate cash flow and/or acquire substitute forms of debt.  Consequently, the general financial strength of this type of borrower must be exceptionally strong.

REVOLVING LINE:

Under some circumstances, a customer can best be served by a revolving credit agreement, which permits the borrower to borrow against a predetermined maximum over a stated period of time.  Borrowings may fluctuate up and down; depending on the customer’s need for funds, but generally will lead to an eventual funding of the debt at the maturity of the revolving credit agreement.  A revolving line of credit agreement is best suited for situations in which the borrower is expanding and needs interim funds for working capital, fixed asset expenditures, or other longer term needs until the expansion is complete.  The borrowing associated with these various expenditures are rolled into some form of long-term debt.

APPLYING FOR A BUSINESS LOAN

The following steps should be taken to apply for a business loan:

1.     Prepare a business plan.

2.     Target one to three local banks and complete their application forms, including a financial statement for all owners of 20% or more of the business.                               

EXISTING BUSINESSES ALSO INCLUDE:                                                  

3.     Profit and Loss (Earnings or Income) Statement and Balance Sheets for the last THREE years.  If not available then use business tax returns.  Financial statements should be current (no older than ninety days).

4.     A list of all existing business debts.  For all loans show original amount of each loan, current balance of each loan, monthly payment on each loan, maturity date and what collateral is pledged to each loan.

START-UPS SHOULD ALSO INCLUDE:

5.     A line-item list of how much is needed to start the business (including the borrowed funds). 

6.     A list of all sources of start-up funds (including any borrowed funds).

7.     A projected Profit and Loss statement for the first year of operation.

WHEN YOU HAVE COMPLETED THIS INFORMATION:

8.     If you would like to have your package reviewed, you may contact either the Small Business Center (SBC) at Rowan-Cabarrus Community College or the Small Business Technology Development Center (SBTDC) at the University of North Carolina Charlotte for an appointment.

9.     Set up an appointment with your banker (if you have a choice, apply at the commercial loan department of your bank).  Take your completed application and business plan.

10.   If your bank should turn you down, ask the bank to make the loan under the SBA’s 7(a) Guaranty Loan Program.  If the bank is not familiar with this program have them contact the SBA’s Charlotte office at (704)344-6563 to discuss your application with an SBA loan officer.  In most cases, the SBA will deal directly with your bank.

11. If you are still turned down, consider the Self Help Credit Union or other alternatives.  For options, visit your local SBC at RCCC or the SBTDC at UNCC.

MISTAKES TO AVOID IN DRAFTING THE BUSINESS PLAN FOR A LOAN

Here are errors in business plan preparation that will probably result in denial of a package by a bank:

 ·       Submitting a “rough copy” perhaps with coffee stains on the pages and crossed-out words in the text, tells the banker that the owner doesn’t take his idea seriously.

·       Outdated historical financial information or industry comparisons will leave doubts about the entrepreneur’s planning abilities.

·       Unsubstantiated assumptions can hurt a business plan; the business owner must be prepared to conclude that the idea is not realistic.

·       A lack of understanding of the financial information is a drawback.  Even if an outside source is used to prepare the projections, the owner must fully comprehend the information.

·       Absence of any consideration of outside influences represents a gap in a business plan.  The owner needs to discuss the potential impact of competitive factors, as well as the economic environment prevalent at the time of the request.

·       No indication that the owner has anything at stake in the venture will lead to denial.  The lender will expect the entrepreneur to have some equity capital invested in the business.

·       Unwillingness to personally guarantee any loans raises a question:  If the business owner isn’t willing to stand behind his or her company, then why should the bank?

·       Introducing the plan with a demand for unrealistic loan terms is a mistake.  The lender wants to find out about the viability of the business before discussing loan terms.

·       Too much focus on collateral is a problem in a business plan.  Even for a cash-secured loan, the banker is looking toward projected profits for repayment of the loan.  The emphasis should be on cash flow.

CRITERIA BANKERS USE IN MAKING A LOAN DECISION

Bankers are conservative, factually oriented and realistic.  They will evaluate your loan application using the “5 C’s” of credit.

1.               CAPACITY - The borrower’s ability to repay the loan from the normal course of business operations, as indicated in the business plan.

a)               Existing business must be able to demonstrate, through financial statements, that sufficient cash flow exists, prior to the loan, to support operations.

b)               Must be able to demonstrate sufficient revenue growth and cash flow after the loan is made to retire debt.                                                             

2.               CHARACTER - The borrower’s demonstrated willingness and ability to repay the loan as agreed.

a)               Existing business must have a clean credit history.

b)               Start-up business: The owner must have clean personal credit, which means few, if any, delinquencies, no repossessions, and no judgments.                   

3.               COLLATERAL - Provides a secondary source of repayment for the loan and is critical in start-up situations.  Most banks like to be 100% collateralized.  Common collateral offered and values given:

a)               Certificate of deposit   100%

b)               Real Estate               75-80%

c)               Stock (publicly traded) 75%

d)               Vehicles                    75-85%

e)               Equipment                 50-75%

f)                Accounts Receivable    50-75%

g)               Inventory                   0-50%                                                                

4.               CAPITAL - The amount of equity invested in the business by the owner(s) and/or investor(s) or from retained earnings.

a)               Banks would prefer to see between 25-50% equity invested in a business.

b)               Start-up businesses: 30% is the minimum equity requirement even for SBA guaranteed loan.                                                                                       

5.               CONDITIONS - Factors in the economy that might impact the businesses ability to repay its debt or deteriorate its collateral position. 

DO’S AND DON’TS WHEN APPLYING FOR A LOAN

1.     Do make a professional presentation; make an appointment, dress in business attire, have your written materials well organized and ready to present to the lender.  Remember, obtaining a loan is a “selling job”.

2.     Do give the lender the most accurate picture possible, the good and the bad. The lender will appreciate your honesty.  You will be better off presenting the risks of your business rather than letting the lender discover them.

3.     Do present the loan amount and terms you calculated to be the most favorable, but be flexible enough to consider the lender’s changes and suggestions.  You may be able to negotiate interest rates with the lender.

4.     Do have the lender explain the loan approval process.  Ask for the date when your loan application will be acted upon.

1.     Don’t become impatient.  Sometimes loan applications must be sent outside the local office for approval.

2.     Don’t spend the loan proceeds before you have them.

3.     Don’t be surprised if the lender wants to meet you at your place of business.  Remember, it is the lender’s job to get to know as much about your business as possible.

4.     Don’t be intimidated.  Ask tough questions.  Make sure you get all the information you need and that you completely understand the loan application process before you leave the meeting.