The role of entrepreneurs in the success of the American economy has been celebrated throughout history; Edison, Ford, Sloan, Gates, Kroc, Jobs, Walton are just some of the examples. The companies they founded employed (and still do) millions of workers and made untold contributions to the US and world economies. At the same time, and partially because of the success of these companies, the share of Americans working for small businesses has steadily declined since the early ‘80s. As I was approaching my own graduation from business school in the ‘90s, my fellow students and I were heavily recruited by and joined large companies such as Microsoft, Goldman, and Andersen; I can’t think of a single classmate who joined a small business (defined here as fewer than 5 employees).
This trend reversed in early 2020, as COVID created an abnormality in the employment landscape and workers’ attitudes towards “job security.” The pandemic came and went, and the economy quickly regained its footing, yet new business formations continued to climb at an unprecedented rate. Last year, new business formations were 80% higher than pre-COVID levels.
Startups require capital which was traditionally provided by equity; cash infusions from savings, friends, family, and for some industries venture capital and family offices. Debt providers largely eschew startups.
Except the United States Small Business Administration (SBA). It’s right there in its mission statement: “SBA works to ignite change and spark action so small businesses can confidently start, grow, expand, or recover.”
As a nationwide, direct SBA Preferred Lender, Gulf Coast Small Business Lending fully embraces that mission and regularly provides debt capital (by way of SBA loans) to startups.
My advice to entrepreneurs seeking capital, in general, and debt in particular:
- We are most interested in your character and experience, so spend as much time on your resume as you do on your business plan.
- Prepare a solid business plan with realistic financial projections based on verifiable benchmarks. For example, restaurants are a great business, but they don’t generate 40% margin, and when we see something like it, we quickly decline.
- Related to #2 above, it is imperative that you present to us projected liquidity, not just profitability. New businesses burn through cash to hire and train new employees, put a deposit on a lease, and buy inventory. These are all important assets; we just want to be certain that there is enough cash to cover all these and any other important items that come up.
- Equity contribution (or as some call it, “down payment”) is a necessary component of the capital structure of any startup. We typically want to see at least 25% in cash equity in startups we finance.
Our experienced team of SBA lenders is always available to talk through your project and help determine if an SBA loan is a good fit for your borrowing needs. Give us a call, shoot us an email, or schedule to meet in person. We will have plenty of time to pore over plans and resumes, but hearing you tell the story, hearing the excitement in your voice as well as your passion for your project is simply irreplaceable. We are here to help!