Are you ready to pull the trigger on your expansion project and wondering how to get the best financing? It can be an intimidating process even for experienced borrowers, so we turned to Joe Rehm, senior vice president of the commercial lending department of Capital Bank of New Jersey, for his five tips for making the process a little easier.
1. Evaluate all costs and impacts. People often underestimate hidden expenses, which can include change orders, upgrades, additional working capital requirements or the disruption to business while the project is underway. It is always better to over-budget and spend less than to try to figure out a shortfall.
2. Be prepared to share. You’ll need to share your financial information, management and ownership structure and the rationale that supports your project. You’ll need to share in the costs, typically by contributing 20 percent. If 20 percent down isn’t feasible, there are ways to put less cash in, such as a 504 loan from the SBA or via participation with the New Jersey Economic Development Authority.
3. Talk to your banker about the right structure. Many businesses wind up financing projects with the wrong type of debt. Don’t use your working capital line of credit to finance fixed assets. Instead, talk to your loan officer about a specific equipment loan or line. If you’ve got a good commercial banker, he or she should be able to listen to your goals and objectives and guide you to the best structure.
4. Listen to a couple of banks. We all value loyalty, but some banks are a better fit for certain types of borrowers or projects. Not only will this help make sure you get the best deal, it will also enable you to identify the differences between banks. But be careful not to shop the request at too many banks. It could have a negative impact on your credit score and/or limit how many banks respond.
5. Pick a banker for the long haul. Rates and terms are important, but so is the ability and willingness of the bank to support you in future projects. If you don’t pick the right bank, you could be starting at step one all over again.
Published (and copyrighted) in South Jersey Biz, Volume 3, Issue 8 (August, 2013).
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