September 10, 2015 Credit Building and Repair

Q&A with Accion Marketing Manager Roberto Valdez-Beltran

Roberto helps entrepreneurs access needed credit and services for their businesses in Phoenix, Arizona. He knows how businesses can take their game to the next level. We sat down with Roberto to see what kind of advice he would give to a business owner in need of financing to improve their chances of getting a loan and succeeding in business.

1. When a business owner is ready to apply for a loan, what are some of the best ways they can prepare in order to impress a lender?

It’s important for a business owner to really know their credit and to understand their score and their credit status. You want to prepare yourself and your lender in advance so that no one is surprised when your lender looks at your credit for the first time.

This means you should look at your credit score and your credit report before applying, and get on top of any negatives. That way you’ll have the chance to prepare your story so that you can explain any credit issues you might face, and you will have already begun working to fix those problems.

You should also have a plan for the funds you’re applying for. A lot of business owners will have the sense that need more money in order to excel, but they don’t know exactly what they plan to use the money for if they get approved.

It’s important to know exactly how you’re going to use the funding and to be able to communicate that in precise terms to your lender. A lender wants to hear whether you’re going to hire people or buy equipment, and what exactly those costs are going to be. You should go in with a breakdown of your expenses that you will use the funding towards, rather than applying for however much money you can get.

2. How do business owners go wrong when they’re trying to get approved for a loan? What mistakes do you see that are common among borrowers?

Not being thorough from the beginning of the loan application process, not answering questions fully, or not providing all the documentation we ask for. It might seem like it’s no big deal, but to us, it looks like it’s a reflection of character.

We need a full package of documentation before we can process your loan application, and if you send it piecemeal, then it makes it harder for us. We draw the conclusion the borrower isn’t taking their loan application seriously or they aren’t thorough as an individual on a day-to-day level; it leaves that impression whether it’s true or not.

Another mistake would be to leave out details of instances that have impacted your credit in the past, or not sharing background information on your business, such as how well your income is diversified. Sometimes the borrower could be more proactive at offering information. Don’t underestimate the importance of all the information you have about your business.

It’s great when a client anticipates questions. You want the client to do that because, for example, you know details on your own Profit & Loss that might be confusing for outsiders to your business to understand, Anticipating those scenarios and being willing to explain those things is a good way to impress a lender.

3. After they get funding, what are the first things a business owner should do in order to make sure they spend the money wisely?

Before you even apply, you should have a plan for how you’re going to use the funds, and don’t lose sight of that when you get the money. Expenses are always going to pop up in a business; don’t let that distract you from why you applied for a loan in the first place. You probably want to grow your business, so concentrate on your plans for that.

You also want to make sure you’re working with any vendors or third parties who are going to get the money, like for example, an equipment vendor that you want to buy from. Accion will sometimes actually give the funds to the vendor, so the business owner has to be prepared for that. Have an invoice ready; get the vendor involved with the process early. Sometimes the vendor wants cash or wants a wire instead of a check, so be proactive about setting expectations with any third parties involved.

4. What are some smart alternative ways you’ve seen businesses raise money without getting a loan?

Some of those most popular ways to get business funding without a loan is to bring in a new business partner. You can sell part of your business to an investor, or you could get a private loan from friends or family.

When a lot of small business owners hear the word “equity,” they think they can’t do that, because it has to be some big, formal arrangement, but you can offer equity in a less formal arrangement with someone you know personally. Of course it’s always important to have everything in writing. I’ve seen businesses let a friend participate in the company. For $10,000 or $11,000, they make them a member on the LLC and give them 5% equity, for example.

I see some businesses make the mistake of tapping into predatory or expensive options like a cash advance. Especially here in Arizona, there are title companies all over the place. People use these expensive alternatives that aren’t good for their businesses.

A better option, if you need a small amount of cash, could be to liquidate equipment. You could sell a piece of equipment and get cash to do different things without having to pay any interest.

5. What are some of the best ways for businesses to raise their profiles in their communities? How can they call positive attention to themselves, and why should they bother?

Business owners should get involved with their communities because of the visibility and marketing it provides to their businesses.

I’ve noticed a trend lately of small businesses joining local business groups. For example, in Phoenix, there’s a membership organization called Local First Arizona. It’s a hip group of entrepreneurs who are promoting each other’s businesses actively. Businesses might hold classes for each other, or share space in offices. These collaborative spaces help them connect with each other in order to grow.

I’ve also seen some strategic partnerships. I have a client who has a training company. He’s signing a collaboration agreement with a partner so he can focus on offering his training to Spanish speaking communities. Strategic partnerships like this can make you more effective at growing and reaching markets you don’t have.

Business owners should also consider giving back to their community. They can donate funds or promote events. They can partner with local nonprofits, or just say, “Hey, can I be on your board?” Those things are good to build social capital. Community involvement doesn’t cost a lot of money; it’s more of a time investment than anything else.

Thanks for your time and the great information, Roberto!

 

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