Business Lending Made Easy

Hi everyone and welcome back to Banking Made Easy with T-Fed.

I'm Lily.

And I'm Courtney and today we're going to be taking a closer look at business lending,

what it looks like, what it means and what you should know before applying.

If you've ever wanted how to finance new equipment, cover seasonal expenses or invest

in growth, this episode is for you.

Business loans come in all shapes and sizes and understanding your options can make

the process feel a lot more manageable.

We recently sat down with Gary Hayes from T-Fed's business lending team to walk through

some of the basics from what lenders are looking for to how to be prepared.

Gary had some great advice to share.

He did, he did.

Even if you're not ready to apply yet, this conversation can help you feel more confident

when the time comes.

Yeah.

Let's get started.

Let's do that.

Hi.

Good morning.

Good morning.

How are you today?

Pretty good.

So we're very happy to have you.

Could you tell us a little bit about yourself and your role at the credit union?

Sure.

I've been here just short of 10 years.

My role right now is the AVP of loan development.

One of the things that that involves is working on our business lending and commercial

lending portfolios and helping our membership with their needs regarding loans.

Well, Gary, it is nice to have you with us.

You did mention that you take care of some business loans and things like that.

Could you tell us the difference between a business loan and a personal loan?

Yeah.

The main difference is that personal loans are for personal purposes and for business loans,

you have to have a business need for it.

So that's one of the things that we look at when evaluating a business loan application.

What's the business need and can it help the business and the owner of the business?

The business improve their business situation.

So Gary, I've heard a lot of terms kind of thrown around when speaking about business

lending.

Yeah, it's a little different.

There seems to be a lot behind it.

I've heard terms of interest only, revolving credit, term loan, could you kind of give us

a little bit of a rundown of what those mean?

Yeah, definitely.

So you said interest only and term loan and those are actually two of the big distinctions

of people making.

And think about it kind of like a home equity line of credit on an interest only long where

you only have to repay the interest every month.

And on a term loan, it's a set amount of time where you pay down both principal and interest

every month and then at the end, there's a zero balance.

The interest only loans sometimes help businesses where they have short term cash flow needs

like a credit card would where you have to pay somebody up front.

Then you get, recoup the funds and then you pay that loan back down.

And all you are obligated to pay every month is the interest on it that balance then

can live on for a little bit and it helps you manage your cash flow like that.

The term loan on other hand is typically used when you have a set amount of funds that

you need, usually for like an equipment purchase or a vehicle purchase or even just the

startup of a business where you know that in some amount of time, a year, two years,

five years that you won't need that money anymore and that you're going to pay it back

and at the end, there'll be a zero balance.

Oh, wow.

So it sounds like there's a lot behind it then versus just applying for a loan.

So you kind of really need to know what you're looking for and what to be considered for

and what would really benefit your business.

For someone who's never had a business loan before, how would you advise someone getting

started and what loan type is right for them?

So there's a lot to consider with that and as I mentioned earlier, business loans are

for business purpose.

So you really have to separate out where the business starts and where you end, especially

if you're in a real startup situation.

And that's one of the things that people find the trickiest usually.

The easiest way to do that is to form a team around yourself of people who you can trust

and people who can advise you.

So I always tell people that they should find a CPA who they can trust to work on their

taxes and their profit and loss statements and just generally know where those lines between

the business and the person and again, especially on the very small business who's our primary

business membership.

You should also look at having an attorney potentially set up.

They can help you form a corporation or an LLC or a partnership, especially if there's

multiple people involved.

There's a lot of reason to separate out the risk involved with the liability of ownership

of assets and funds.

And there's also a lot of reason to make sure that if there are multiple owners involved

in the business, that everybody has their role and their ownership percentages sorted

out up front.

Other resources that people can use are mentoring organizations as well as other local

community organizations that help people out.

So some of those are score, which provides mentoring and coaching for people looking to start

up businesses and seed, which is right down the street from us and they are a development

corporation, which helps people with very small loans as well as some larger loans.

And they also provide business planning services, budgeting so that you can understand how

you can take an idea and turn it into an actual business.

And I mentioned all that because in addition to things like relationship managers at the

credit union who can help you out with your actual deposit needs and who can advocate for

you down the line when you come in for a loan, the people that can help you out are the

ones that are sent you up for success when you apply for a loan because a lot of people

have an idea for a business, but they need help finding a way to get to the point where

they can start the business, have a real plan for it.

And those are the steps that you need before applying for a loan.

Well, thank you so much.

Thank you for all those resources and it sounds like you're a wonderful point of contact

for that.

So with all the business loans that you do take on, when do you think is a good time for

a business to consider like, okay, now I need a business loan and what that looks like.

A lot of the situations we see are when people realize that their current amount of funding,

the capital that they've put into the business won't cover them for either their daily,

weekly, monthly annual needs or when there is a situation where they can save money by

getting along.

The two differences in those scenarios would be if you need to spend money to make money.

But say you have a salon and you need to have supplies on hand and you can't have a client

come in without having the supplies to actually perform the services that you need to perform.

You could consider a loan at that point to buy supplies, to buy equipment even so that

you can then have clients and make money from it.

So that's one scenario.

And that kind of extrapolates out all the way to larger small businesses that might have

a contract like let's say a construction company that's going to go do work for somebody

else.

They're going to need to buy materials before they can go install those materials and get

paid for the installation of those materials.

Some of those businesses have lines of credit and other loans that work for that purpose.

The other scenario is where the loan might get you enhanced cash flow.

So if you have established your business and you've been renting space from somebody

else and you've come to realize that it might be cheaper to own your own space.

You could get a commercial loan for property so that your business can move into its own

space.

You can build a little bit of equity over time as well.

But that might save you over renting from somebody else.

So the two main scenarios are you need the money to move forward and getting a loan will

save the business money over time.

So Gary, it sounds like some of the benefits that we're offering our members is just

full service.

It's everything that they need and require across the board.

Yeah, I'd say between our deposit and lending services and the information we have about

other resources, we have a full suite of services for our membership to help their current

and future business needs.

So Gary, we've talked about when they should consider a business loan and you've given

us amazing resources for our business members to look forward to.

Did you kind of go over the steps for preparing for a business loan application?

Yeah.

What we normally ask for when somebody comes in and they apply for a business loan is to

see their last few years of financials, to see if the business is making money, to see

if we can help them save money, to see if they can afford the loan.

We're also going to look for forward projections.

We want to see if they are going to continue making money.

So there's a lot of analysis that goes into that.

Most of our business members are also, again, small businesses.

So there's a personal stake from people.

So we're going to look for a personal financial statement to see if there's personal assets

that will help back up the loan that we make as well as personal tax returns.

Then we're also going to want to know about, again, the business purpose of the loan.

So a simple example is a vehicle.

If you're coming in for a vehicle loan, we will know what type of vehicle it is, what

it's going to be used for, and how much it's going to cost.

Or if it's bigger equipment, like let's say an excavator, same thing.

If there's not an asset that's being bought with those funds and it's going to be used

for something like working capital, we're going to want to see evidence that that working

capital isn't going to turn into what we call permanent capital, that you're actually

going to be able to use those funds and repay them.

And that's usually like an interest-only scenario where people are going to need the funds

short-term.

Again, like a credit card should be used.

Absolutely.

And now we've talked about how to apply for a business loan, what steps are taken.

Let's say a business is approved.

What are the next steps for that?

After the business is approved, what we're really going to do is look to make sure that

the loan documentation is there that might involve attorneys doing searches on the business

or, again, on real estate, on the real estate to make sure it can actually be transferred

and owned by the business.

We're also potentially going to need appraisals or equipment valuations.

Let's say it was a restaurant loan.

We would hire a valuation company to go in, take a look at all the assets of the business,

potentially try to evaluate what the good will is in that business if it's being purchased.

And then wrap up the loan documentation, again, potentially with attorneys or without

attorneys on smaller loans if we could do them in-house so that we can get you to funding

and get that cash in hand to make sure that the business can continue operating.

Okay, that makes a lot of sense.

So as we talked about before, it really does take a village from the start to the end.

Yeah, there's no easy answer and the more people involved, it's not just because we want

to get people involved, it's because we need help from everybody.

Absolutely.

Thank you so much, Gary.

Welcome.

So, Gary, after a business gets funded, what can the business expect from us after that?

So we're going to stick around to support you, but the other thing is that on a business

loan, unlike a personal loan or a mortgage, there's a two-way relationship that continues

forward the life of the loan usually.

So different types of loans have different needs.

The biggest might be a commercial real estate loan or an unsecured line of credit where

we're going to ask you for an annual review of that loan, which involves continually submitting

tax returns and personal financial statements.

Other ones might be a little bit simpler.

That said, we're also going to be here when you need things.

So we do have loan servicing, which can help you if there's any problems with your payments

or loan notifications.

If terms change, we've also worked on restructuring debts in the past and again, consolidating

debts for people as is appropriate and needed for them.

Sounds like that's kind of where those relationship officers may come back into play, right?

To continue maintaining that relationship and providing services that that business might

need.

It's very important both to work with us on the deposit side and the lending side.

Realistically, most of our business members will interact more on the deposit side and

then when they need a loan, they'll come on the lending side.

But that relationship officer is going to be able to advocate for you when it comes to

the lending side because again, they're going to see you more often.

They're going to have a more clear view of the day-to-day of your business, whereas

we're just getting a snapshot on annual filings like taxes and profit and loss statements

they're going to know more what happens with you continually.

So we've gotten so much information today.

Is there anything else that you would want to share or let listeners or viewers know?

I think the main thing is just to realize that as the credit union, we're going to be here

for you throughout the entire journey of the business.

We might not be able to assist you with everything, but we're going to be able to help you find

those resources and set you up to go from a startup to a fully operating business and

do everything we can to support you because that's part of our mission in the community.

Thank you so much for coming in.

I can imagine that you're very busy and all of the information is extremely useful for

all of our members.

You're welcome.

I was happy to be here.

And if you want to connect with someone from our lending team, we're always happy to

talk.

Just stop by a branch or send us a message online.

Yeah.

Thanks for tuning in to Binking Made Easy with T-Fed.

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We'll talk to you soon.