by Heather Gurewitz
December 2019 Presentation at Coast Women in Business
Watch our recording (excerpt) of this event and don’t forget to subscribe to our YouTube channel:
Sources of Business Financing
- Personal savings
- Friends and family
- Crowd funding
- Investment capital
- Credit cards
- Bank loans
- Community (nonbank) lenders
Uses of a Business Loan
- Equipment
- Inventory
- Supplies
- Materials
- Working capital
- Start-up expenses
Establishing the Cost of Capital
- What’s the term of the loan – how many years?
- What’s the interest rate?
- Is it fixed or variable?
- Is it simple or compound?
- Is it APR or other price?
- What additional fees are charged?
- Closing?
- Application?
- Insurance?
Why Get a Term Loan?
| EDFC LOAN | CREDIT CARD | KABBAGE LINE OF CREDIT | |
| Amount Borrowed | $10,000 | $10,000 | $10,000 |
| Interest Rate | 10% simple APR | 15.49-21.49% variable compound (calc @ 19%) | 1.5-10% monthly fee (calc @ 6.%) |
| Closing Costs | $250 | -$650 | $0 |
| Monthly Payment | $323/month | ~$300 (3% of balance)/month | $1,433 then $958/month |
| Total Interest Paid | $1,616 | $10,035 | $4,350 |
| Time Frame to Pay Off | 3 years | 14.5 years | 1 year |
| Total Cost | $1,866 | $9,385 | $4,350 |
It saves you money!
The Five Cs of Credit
The 5 Cs of credit are the basis many banks and lenders use to determine whether they can make a loan.
- Character – Does the applicant have a history of repayment? Does their past history show they can be trusted to repay?
- Capital – What are the owners investing into the business to show that they are committed to the project?
- Collateral – Does the borrower have something they can use to secure the loan in the event that the business fails?
- Capacity – Will the business be able to replay the debt based on the business’s cash flow and other outstanding debt?
- Conditions – Are there outside influencers or economic conditions that will impact whether the business can succeed?
For more information about financing in Mendocino and Lake Counties, contact EDFC at 707/237-5705 or edfc.org.
Capacity: Can You Pay It Back?
- For every $1 you owe, you need at least $1.25 of net income
- For $10,000 @ 10% APR for 3 years:
(Monthly PMT = $323 / Monthly income = X) = $1.00 / $1.25
Business NET income must be $404/month or more
Getting Ready to Apply
Start-up checklist:
- Business plan
- Financial projections
- Equity/Owner investment
- Collateral
- Tax Returns
- Bank statements
- List of purchases/uses
- Cost estimates
- Licenses/planning/zoning info.
Existing business checklist:
- 3 years of financial statements
- Financial projections
- Equity/Owner investment
- Collateral
- Tax returns
- Bank statements
- List of purchases/uses
- Cost estimates
- Licenses/planning/zoning info.
Developing a Relationship
- Contact the lending institution BEFORE you fill out the loan application
- Be 100% honest with your lender
- Ask questions and make sure you understand the answers
- Be prepared to do the work
Help Getting Started
- Business planning
- West Business Development Center – 707/964-7571 or westcenter.org
- SBA – sba.gov
- Loan packaging assistance or questions for EDFC
- Call: 707/234-5705
- Visit website: edfc.org
- Email: heather@edfc.org
About the Presenter
Heather Gurewitz is Executive Director of the Economic Development and Financing Corporation (EDFC), a nonprofit business lender serving Mendocino and Lake Counties.
About Coast Women in Business
Coast Women in Business supports the business community on the Mendocino coast. We meet monthly to foster entrepreneurship and professional development on the Mendocino Coast and beyond. Membership fees are $50 annually or $10 per drop-in meeting.
Note: We welcome all – all races, all genders, all countries of origin, all sexual orientations.
Your first meeting is always free, and we offer a limited number of need-based memberships—please inquire. We’re sponsored by the Women’s Business Center at the West Business Development Center. We look forward to seeing you at our next meeting!
Please contact us with any questions. We look forward to hearing from you!