Evan Vitale Consulting: Business plan, honesty called keys to winning small-business loan

Photo: Carol Kaliff / Hearst Connecticut Media

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Monica Guevara, center, is part of a panel during a seminar called “Access to Capital for Small Business” held at Western Connecticut State University Tuesday, Nov. 1, 2016. Also on the panel are Nelson Merchan, left, and Sheila Hummel. Robert Barghause, instructor of finance at the university, far left, is the moderator. less

Photo: Carol Kaliff / Hearst Connecticut Media

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A seminar called “Access to Capital for Small Business” is held at Western Connecticut State University Tuesday, Nov. 1, 2016.

Photo: Carol Kaliff / Hearst Connecticut Media

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A seminar called “Access to Capital for Small Business” is held at Western Connecticut State University Tuesday, Nov. 1, 2016.

Photo: Carol Kaliff / Hearst Connecticut Media

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A seminar called “Access to Capital for Small Business” is held at Western Connecticut State University Tuesday, Nov. 1, 2016. The seminar, moderated by Robert Barghause, instructor of finance at the university, left, included Nelson Merchan, Monica Guevara and Sheila Hummel. less

Photo: Carol Kaliff / Hearst Connecticut Media

Business plan, honesty called keys to winning small-business loan

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DANBURY — Hoping to land a small-business loan?

Have a solid, bulletproof business plan in hand when you approach a lender. Don’t lie about or hide any financial issues. Be involved with your business. Beware of Internet lenders.

Those actions were among the recommendations of panelists at the “Access to Capital for Small Business” event held last week at White Hall on the campus of Western Connecticut State University. The event featured two discussions: one on traditional sources of capital, such as banks, and another on nontraditional sources, such as state or nonprofit agencies.

As the economy improves and loans become somewhat easier to obtain, demand continues to soar for small-business loans. In 2015, the Small Business Association announced its SBA 7(a) loan program had reached its yearly cap by July 23, granting more than 45,000 loans. That high demand is continuing this year.

Michael Sauvageau, who owns the startup business Noteworthy Chocolates in Bethel with his wife, Jennifer, received $28,000 in a kickstarter campaign to get the company off the ground. The problem is, the couple has spent $40,000 already. They are seeking a small-business loan for supplies, packaging and marketing.

“Marketing is the way you get the name out there so we need some money for that,” Sauvageau said after attending the event at Western. “We spent last year incubating this and dipping into our savings. The idea is to get capital for a buffer, but lenders want you to have a history and we’re a startup. We understand banks don’t want to take risks and startups are inherently risky. It’s tough to get access to capital unless you have a rich uncle, which we don’t.”

Sauvageau said he spoke with a banker following the event and has a meeting set up to discuss a loan application. He remains optimistic about his prospects.

“We have infinite faith,” he said. “It just takes time to get things going.”

It’s good to have faith, but it takes much more to get an idea off the ground and obtain the funding to help do so. For starters, it takes a solid business plan.

“Get that business plan in working order, whether you’re seeking traditional or nontraditional lending,” JoAnn Cueva, director of the Greater Danbury Chamber of Commerce, said as she delivered the event’s closing remarks. “It’s a key component when seeking a loan.”

The business plan is such a vital part of the loan application process that each of the six panelists at the event last week discussed the importance of having a good one.

“I’m a big fan of the business plan. That’s the map of where your business will go,” Monica Guevara, director of underwriting at Valley Economic Development Center. “Know who your customer is, put in your experience, and give projections and assumptions. But also tell us how you got to those numbers. It’s not just putting numbers in there; substantiate them.”

Valley Economic Development Center is an alternative lender for small businesses. The nonprofit organization is a place to turn when banks or government loans are not approved. Rates for loans from her organization are generally higher than traditional loans.

A good business plan is not necessarily a long one, however, said Sheila Hummel of the state’s Department of Economic and Community Development. The DECD offers a variety of financing options, including the Small Business Express Program designed to spur job creation in the state.

“Be as concise as possible. You don’t need a 40-page business plan,” she said. “For a startup business, it’s so important to have a solid business plan.”

Hummel said her agency has funded 22 businesses in Danbury but she’d “like to see more.”

For small-business owners struggling with their business plan, free help is available through the Connecticut Small Business Development Center. The SBDC offers advice to small-business owners on topics such as business evaluations and plans, financial projections, access to capital, state incentives, marketing and what it takes to start a business. The advice is free as a service of the Small Business Administration.

Nelson Merchan is the local SBDC business adviser and holds office hours, by appointment, at the Greater Danbury Chamber of Commerce, Danbury Innovation Center, Newtown Library and Brookfield Chamber of Commerce. Visit www.GrowCT.com and register at “request business advising” to set up an appointment.

“The business plan is key, but before you do a business plan, do a business evaluation. It’s less time and money. If the evaluation shows good potential, then move on to the business plan,” Merchan said. “We can also work on financial projections. We want to see the numbers. Make sure you keep them reasonable.”

Hummel, Guevara and the three banker panelists all stressed open communication and honesty when it comes to applying for a small-business loan.

“Tell us everything,” Darren Piper, vice president of commercial lending at Savings Bank of Danbury, said. “The quickest way to have a deal turn sour is for the lender to discover something that wasn’t disclosed by the borrower. It may not seem like a big deal to you, but be open, honest and up front. If it’s not on the tax return, it doesn’t exist.”

Vincent DiGilio, vice president at Union Savings Bank, added: “Communication is important, but it’s on the banker to make sure there are no surprises.”

While the bankers, including Anthony Giobbi of Newtown Savings Bank, said they like building relationships and giving loans to small businesses, they can’t approve all the applications because of their fiduciary responsibility to customers.

“That’s why the regulations are sometimes onerous,” Giobbi said. “At the end of the day, we want to make sure our depositors’ money is safe.”

Robert Barghaus, an instructor of finance at Western, moderated the alternative sources of capital portion of the event. He said that 60 percent of small businesses two years or younger can’t get funding because of the sometimes onerous regulations.

“Small businesses are the future of the country so we need to figure out a way to get funding to these businesses,” he said.

Cbosak@hearstmediact.com; 203-731-3338

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