Capital constraints

The securing of project financing continues to challenge local developers

Excavation

For local businesses seeking financing for a new project or for growth, tight credit conditions can make the process a challenge. As banks continue to maintain conservative lending standards, business leaders are taking a pragmatic approach to financing strategies.

At the Small Business Development Center in Vancouver, Buck Heidrick works with local business owners to help them manage their businesses better, and find funding.

“If you need money and you’re in business already, you’ve established that credit. You can probably get funding through a bank using revolving lines of credit,” Heidrick explained. “Going after funding for anything beyond that is very difficult, unless you basically don’t need the money.

“If you don’t need the money, the banks will loan you the money.” He added.

Local property developer Elie Kassab said that he tried to work with a number of local and national banks to fund his 96-unit apartment project in downtown Vancouver.

“It was a long process working with the banks and they promise you a lot and under-deliver, and change the terms as you go,” Kassab noted.

After spending a considerable amount of time trying to work with banks, Kassab opted to finance his project through a private lender.

Private lenders can be a good option for those who have collateral, but do not want to deal with the rigid policies associated with bank lending.

In any event, Heidrick said that businesses need to realistically evaluate whether they can qualify for a bank loan.

“If you’re a startup, there’s no way the banks are going to lend you any money until you’ve been in business for three years and have an established track record,” he said. “Even then, you need to have a lot of collateral.”

Though he most recently utilized a private lender to finance his downtown Vancouver project, Kassab said that he is a big believer financing under special government programs.

“There is financing available through the Small Business Administration and through the US Department of Agriculture for certain types of businesses,” he said. “That takes a little bit longer, there’s a lot of paperwork, but in the long-run it is worth it.”

While Small Business Administration (SBA) loans are provided by banks and other lending partners, the SBA qualifies borrowers and guarantees the loans, providing a means to loosen the credit markets for small businesses.

Columbia Credit Union is one of Southwest Washington’s leading SBA lenders. William Fulk, executive vice president and chief operating officer, said that the credit union wants to do what it can to help grow local businesses.

“The reason we look at SBA lending as a good fit for a credit union is because we like to make loans to entities that employ
people in our community,” Fulk commented.

Still, for many, SBA loans will have overly strict requirements. As a result, new or undercapitalized businesses may need to look closer to home, including friends and family.

“You have to go through people that you know,” Kassab noted while stressing the importance of networking. “There are sources available looking to get returns for their capital, because people with money in the bank are not getting any return.”

Heidrick agreed that newer businesses need to look toward a network of family, friends and associates. At the same time, he said, owners can get creative to meet their financial needs.

By working with suppliers to get extended payment terms, or by securing a bridge loan on accounts receivable, Heidrick said that businesses can look to find cash flow benefits throughout their operations.

New businesses can also benefit through the growth in crowd-sourced funding. Through online businesses like Kickstarter, entrepreneurs can attract money from a diversified pool of investors.

Kickstarter reported recently that it has launched more than 83,000 projects to date, with more than $464 million dollars invested.

While this is relatively small as compared to the country’s small businesses needs, crowdfunding is growing quickly in popularity, and may emerge as a more broadly important resource for new businesses.

Meanwhile, for new entrepreneurs, Heidrick said to be realistic, and to realize that for the vast majority of new businesses, “you’ll be bootstrapping and proving yourselves for three years.”

According to Heidrick, “Somewhere upsides of 75 percent of small businesses are bootstrapped. I don’t think most people understand that.”

The longer-term goal, he said, needs to be a profitable business model and a solid business
plan. An established business will have a much easier time attracting funds.

Heidrick said that the SBDC offers no-charge services to help businesses develop the strategies and documentation necessary to secure capital.

“People come to us for assistance with strategic planning, startups, finance, accounting [and] marketing,” he noted. “In the last few years we’ve seen a huge increase in people who have viable businesses that got hammered hard in the marketplace.”

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