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You're purpose-driven, energized and you have a vision that makes supporters gasp with delight. You've visions of a store filled with beautiful, flexible fixtures that will serve you for the next 30 years brimming with well placed merchandise, of a customer counter that flexibly suits single or multiple employees and their happy work.
Now how do you finance all of that?
What we've learned from our most successful customers are three things:
1) they build the store that they want from the onset
2) they have the merchandise their customer base wants (and are ready to lead them into expanded awareness)
3) they preserve their cash by using smart and creative financing options
Since you know a lot about the first two, let's talk about #3 -- financing and funding options.
Best Practice 1: Keep your cash. You can have a great business but CASH is the one thing you can't get easily. Estimate what you'll need and double that. Use it judiciously and only when you have to.
Best Practice 2: Finance and build financing around long-term assets. Franklin Fixtures are different from other fixtures in one important way: you can finance them long term through an equipment loan (or other loan). Franklin Fixtures is proud to have proven to underwriters that Franklin fixtures last for decades, that they have resale value of 80-85% even after a decade or so. That makes underwriters feel all warm and fuzzy and generous. Start with valuable fixtures as equipment around which you can build a total financing package.
Equipment loans enable you to finance the fixtures you need, your POS system and technology, even your walls (if you use the Franklin Flex Wall system) on a 10 year note (or more if you qualify). Your commercial lender will not likely have an equipment loan option, but there are a few really good companies who specialize in this.
Best Practice 3: Get beyond your commercial lender. With the changes in banking regulations, commercial lenders have very limited options for small business unless you have oodles of cash sitting in their banks. Here are some really good alternatives:
If you have a credit score of 650 or better AND at least 2 years in business, your options are broader and include:
- Great rates and terms with equipment loans (for new fixtures and systems). Franklin selected a partner based on a few customer's experience (and our own) and suggest a talk with Dane at Direct Capital if this is of interest. His contact is listed at the bottom of this blog.
- Easy access to SBA 504 (for equipment/fixtures purchases) or SBA 7A (for buildings, operating capital AND equipment/fixtures purchases). The SBA 504 will only collateralize the equipment/fixtures and not need you to put a lien on things like your personal home and such. The SBA 7A will collateralize everything (that's the law). The 7A is bigger and you can get up to $7M with the right package and experience. But only get what you need -- the rate is low, but variable and the terms are usually between 10-30 years. We found a great partner in Byline Bank and worked with Jerry Woods, who specializes in our type of customers.
- Consider the USDA: they have a great loan program but requires a 1 to 1 collateral relationship for the loans. This means you can only borrow as much as your collateral is worth (the SBA lets you borrow more).
If you have EITHER a credit score better than 650 OR 2 years in business, your options are more narrow, but they are still there:
- Good rates and terms with equipment loans (for new fixtures and systems). Dane at Direct Capital can connect you with other partners who have somewhat higher rates but still help you preserve cash. As you pay those off (even a few months), we suggest converting to another loan that will be a better rate for the longer term. Read the terms and total interest fees very carefully.
- Pretty easy access to SBA 504 (for equipment/fixtures purchases) or SBA 7A (for buildings, operating capital AND equipment/fixtures purchases). This is the same as the above (if you have good credit) and the best part about the SBA is that they will consider things for long term that commercial banks cannot.
- A good and hard-working commercial bank partner can help you with options and knows about the SBA guaranteed loans, but it's a lot of work for them and unless they specialize in that, they may be reluctant to send you down that path.
Best Practice #3: Value dollars and cents. Every expense counts... you want money to flow in easily and often but to exit reluctantly and only as a good investment in the future. Before you spend, ask "will this expense still be helping me in 2 years?"
Best Practice #4: Build your personal credit score AND your business credit score. Get tight and read it all -- you'll likely find errors that you'll want to dispute to build your credit score. And even a few points can mean thousands of dollars in long term financing. Pay on time, avoid a negative review and read carefully about what builds your credit. This is a really important asset.
Best Practice #5: Guard your social. This is related to #4 --- don't let people do a hard pull on your credit until you're sure you want to work with them. Those hard pulls (giving your social and permission for them to find a loan for you) will negatively affect your credit and stay with your score for at least a couple of years.
Best Practice #6: Take advantage of tax deductions. Get cozy with Section 179 and know (before you meet with a tax professional) what you can and want to write-off and when. This is SO important.
Best Practice #7: Some community-based stores are using community-involved funding. Giving your interested customers an opportunity to contribute to your store creates interest and investment early and is a great help in any other funding situation, including your commercial lender. Even raising a small amount is an indicator of success for a new small business.
Best Practice #8: Soft cash with Equipment loans. For equipment and fixtures loans you can usually borrow about 25% on top of your fixtures cost for soft costs like an unexpected electrical rewiring invoice, a front door fix, etc. Depending on your cash reserve, that may be a good option. Do the math and you'll know.
Resources:
For financing, there are hundreds of organizations out there claiming great things. Like credit card offers, some of them are good; some of them are not good. Here's who we like:
Direct Capital (and have put a link on our website) They make it easy and their underwriters know about our fixtures and their longevity. Our customers led us to them and we've financed with them as well. Dane Hylen knows a lot about us and is great to work with.
Byline Bank and Jerry Woods. Byline is huge and only does SBA and USDA loans, and they are great resources, whether you have a tiny store or a big enterprise. Jerry has been specializing in SBA loans for 30 years and is a genuinely great guy. And he knows Franklin Fixtures well and understands their long-term value.
We have no financial relationship or benefit from you working with either of these folks; we just know they help our customers move forward in good ways and that the rising tide floats all boats.
Learn more about the SBA, about USDA rural development loans, about equipment lending and about good small business practice with Score, where you can find a mentor. Donna Paz and Mark Kauffman are great resources as well on this topic.
And you're welcome to contact Lisa Uhrik at Franklin Fixtures. Nothing gets us more excited than helping a new business succeed. Fixtures are a part of that, but for us, that's just one important way we'd like to contribute to your long-term success.
Magic City Books. Tulsa, OK