River Cities Business Journal: Cover Story

Collateral key for startups; Be prepared when looking for loans to go into business

Kingman Daily Miner

Qualifying for a loan to start up a business means a borrower should provide an extensively researched business plan, and collateral to back it up.

“We would look for somebody who's done their homework,” said Cecily Lucky, a commercial loan officer with Mohave State Bank.

Lucky said for somebody looking to borrow money to start a business, it is very important to show the research behind the concept.

“Whether it's a service business, it's very important to document, you know, where my sales are coming from, what's the target market I'm trying to reach, and how that target market is addressed here in the specific area,” she said.

Lucky mentioned the Small Business Development Center at Mohave Community College that helps new entrepreneurs put together a business plan.

“That plan is so important for a lender to look at to see projections where sales are going to come from and how they've researched what their expenses are going to be and what their overall income is going to be so they can make their own payments,” she said.

Credit history, experience in the type of project undertaken, collateral and repayment ability all factor into the viability of a borrower.

“Somebody does need to have some personal financial wherewithal to them so they can get involved in supporting a project like that, and their personal credit history, their credit scores are very important,” Lucky said.

A potential borrower should provide through documentation of their financial history including a personal statement and tax returns, as well as some equity to put up against the business.

“Starting a business from scratch with no money is going to be very difficult to do,” said Bill Matunas, a branch manager with Stockman's Bank in Kingman.

“Even the SBA will want - it can be equity in their home, it can be equity in other situations or other assets, this kind of thing, so they're still going to be looking for 20-percent equity, similar to what the bank's approval is,” he said.

“Personal credit history, if they've had credit problems in the past, this type of thing, it's going to be somewhat difficult to get approval,” he added.

Any type of loan is going to be largely collateral driven, according to Melinda Blais, a commercial loan specialist with Mission Bank in Kingman.

“Lots of new business startups maybe do a home equity loan to get it started,” Blais said.

“They're going to have some of their own cash into it,” she said.

“Ninety percent of the thought process is collateral driven.”