Advice from Debbie Downer: 4 Things to Consider when Researching Loans

I’m always finding news things to like about the City of Philadelphia “Business Services” website. Turns out, the site’s “Financing and Incentives” page offers an extensive “who’s who” of local lenders, grants, and city-sponsored tax credits--a great resource for both nascent and established businesses. BONUS: The list serves as a nice complement to two of Empowerment Group’s how-to guides: “SBA Loans for Small Business” and “Loan Packages for Small Business”.

Some of the listings, however, are less attractive than your first glance may suggest. Take the Sustainable Business Tax Credit, for instance: B-Corporation certified businesses receive a $4,000 tax credit. Pretty sweet, right? But keep reading... “No more than twenty-five (25) businesses will be certified as Sustainable Businesses in any one tax year.” Huh.

So, how do the listed loan programs stack up? Well, there’s definitely some of the “too good to be true” variety, but there are also some exciting opportunities. HOWEVER, there is no easy path to outside financing. Not to be a Debbie Downer, but you need to start this journey with a realistic idea of what’s expected from loan applicants.

1. They will ask you to submit a business plan. If you’re business is just getting off the ground, you’re probably not making any money yet. Don’t fret: that’s not always a dealbreaker for lenders. However, they will not give you money if you can’t tell them how you will eventually turn a profit. A business plan with financial projections and a detailed marketing strategy outlines your ideal business trajectory.

2. They may ask you to list matching funds. Lots of loans promise to cover up to 50% of a projects total costs. Flip side: you have to have the capital to pay for the other half. If this isn’t the case, you’re still going to need to demonstrate your willingness to spend your own money and your ability to support the monthly loan payments. Whether you’re using business profits, spousal income, or personal savings, lenders want assurance that you will pay them. It’s their job.

3. They’re probably going to be picky about your credit history, your bills, and your existing debt. Again, they want to know you can pay. Accion, a nationwide microlender, estimates a $127 monthly payment for a $2,000 loan. If you can’t prove that you can pay PECO $127/month, they’re not going to have much confidence in your ability to pay them.

4. The interest rates may sadden you. You know how low the interest on your savings account is? Well, that figure looks even more grim when you see the interest rates on a lot of these loan applications. 9%. 15%;. 20%. With numbers like that, you better be sure the loan can make you some money.

If you can stomach these realities, I implore you to go forth with conviction! Get those loans, build those businesses, create jobs! Even if you can’t stomach these realities, it doesn’t hurt to peruse the Business Services website and see what’s out there. Just do so with the eyes of a pragmatist.