Financing Tips

Financing Tips and Options

According to the International Sign Association’s 2013 State of the Industry Report, 93 percent of respondents indicated that their business will expand over the next 12 months. For most companies, that expansion will require securing capital for investment into new equipment, a larger shop or more employees. Understanding the latest financing options can help determine what works best for your sign company.

Financing Options

Anthony and Tina Asp, owners of Image360 in Burlington, Wash., celebrate the grand opening of their new sign production facility. (Photo courtesy of Image 360)

“Fortunately there are quite a few options available for small businesses no matter if they are start-ups or existing,” says Bonnie Garcia, associate vice president of business development, of Generations Federal Credit Union, San Antonio. “Secured [loan] types include commercial real estate, commercial vehicles and equipment loans and may include loan guarantees under the U. S. Small Business Administration 504 or SBA 7(a) loan programs. If companies are looking for unsecured loans, there are many choices there as well, including commercial lines of credit, commercial credit cards, and again lines within the SBA 7(a) program.”

Equipment Loans and Financing

Approved applicants can choose terms of two to five years and capital amounts $5,000 to $100,000 or more, says Jim Wall, vice president of sales, Horizon Keystone Financial, Mt. Laurel, N. J.

“95 percent of people go with a lease- to-own plan.” Other options include returning the equipment, “Or they can purchase the equipment for some residual value,” he says.

Along with the equipment itself, printers, furniture, phones, lighting, software, related costs may also be financed, explains Wall. Shipping, sales tax and virtually “any cost associated on the invoice can be financed.”

Along with the application, Dunn & Bradstreet business credit reports and personal credit reports are required for new business applicants (operating less than 24 months) and established business applicants (operating for at least two years) to make a credit decision.

Document Preparation Tips

Wall recommends updating your personal and business credit reports to determine your current FICO scores.

Studies show just how common inaccuracies are. According to a February 2013 report by the Federal Trade Commission, five percent of personal credit reports contained at least one inaccuracy between the three credit reporting agencies (Experian, Trans-Union and Equifax).

According to Wall, established businesses generally need a FICO score of 650 or greater. New businesses generally need a FICO score of 690 or greater.

Approval

Wall says applications submitted to Horizon Keystone Financial up to $100,000 are generally approved in 24 hours, while requests for more than $100,000 take 24 to 48 hours.

With financing pre-qualified for three months, the best equipment suppliers may be selected. Invoices are forwarded to Horizon Keystone Financial and delivery is setup.

Benefits

Equipment financing can help sign companies increase sales and their competitiveness.

“Financing new equipment allowed us to offer a broader range of services to our clients. [Services] they couldn’t get anywhere else in town,” says Robert Rule, chief operating officer of Signs Now No. 11, Boise, Idaho. “The broader range of services due to special equipment, i.e., flatbed and 104” roll-to-roll capabilities, allows us to offer goods and services that the majority of our competition can’t offer. With financing to purchase new equipment, our annual sales have increased (about) 20 (percent) during a recession economy.”

Here is an exterior view of Signs Now No. 11 in Boise, Idaho. (Photo courtesy of Signs Now)

While equipment financing has been used primarily by established sign companies, start-up sign companies have used bank-based financing.

Startup Loan Funding

Anthony Asp, owner of Image 360 in Burlington, Wash., used a 7(a) SBA guaranteed loan to fund his company and explained its benefits.

According to Asp, the SBA guarantees a large portion of the loan, increasing the chances of approval. According to the SBA’s website, loans up to $150,000 are guaranteed up to 85 percent. Loans beyond that are guaranteed up to 75 percent.

Important Required Documents

Raymond Longstreth, senior business development representative at Generations Federal Credit Union recommends:

Entity Documents:

This may include Articles of Incorporation or Articles of Formation that are filed with the state.

Tax Returns:

Up to three years of business tax returns may be required. Partners with a 20 percent or greater stake in the business may be required to submit personal tax returns. Asp reported his past three years of personal tax returns, though five years may be required.

Credit Reports:

Business and personal tax reports, along with an appendix of debt and respective creditors are often required.

Up-to-date Business Financials:

Cash Flow Worksheet, Balance Sheet and Profit & Loss Statements are required. Asp says the bank performed a “forensic analysis” of his assets to determine his credit worthiness. The bank looked at retirement assets, life insurance policies, home and motor and recreational vehicle equity and liability amounts.

Business Plan:

“One of the most critical items needed is the business plan,” says Longstreth. “A business plan not only provides clear and defined goals, but it also shows that you—as a business owner—know your industry, your competition and your defined plan for success in the coming years.”

Signs Now No. 11’s printers in action and lobby below.

Asp credits his four-month loan approval process with a detailed business plan.

Business Plan Contents

Detailing past, present and future factors that may impact the business’ survival is essential for approval. According to Asp, it shows why your business needs the money and how it will be paid back.

The business summary includes what type of legal entity the business is, what skills the owners and management team have.

The background portion explains the state of the sign industry and relevant sign industry experience the applicant brings to his or her company.

The third-party operational support includes what start-up support you may receive from a parent company. Examples include business operations, accounting procedures, sales and marketing and production procedure training.

The business organization lists owners and senior management, details what technology will be used (i.e., computer-assisted design) and what will be produced (i.e., letters, banners, signs) by what pieces of equipment (i.e., printers, laminators, etc.)

All products produced can be listed and how they are produced (in-house or with the help of a sub-contractor) to show how revenue will be generated to pay the loan back.

The marketing and sales section explains how customers will be targeted. Examples include in-bound marketing tactics through search engine optimization and building relationships to listen, learn from and implement feedback from users on social media including Facebook, LinkedIn and Yelp.

A critical piece of a business plan is working capital.

Importance of Working Capital

James Drought, general manager of Signs of San Antonio, recommends to “have a decent chunk of working capital” built into your loan. Asp explains that startup sign companies who calculate their working capital requirements increase their chances of getting approved for a loan and succeeding in business.

Working capital helps start-up companies sustain themselves during the 12-18 month startup-phase, as Asp explains. It must be projected properly to sustain the company.

Basing working capital on known costs and from projected data based on sign-industry specific figures is a good way to calculate it as part of a company’s total financial projections.

Examples of known costs include, lease or rent payments, insurance costs (business liability, life insurance for business owners) and marketing costs.

Financial projections are the expenses and profits that an individual company believes they will make. This may be projected from available data from a parent company, such as Alliance Franchise Brands, which is the parent company of Asp’s franchise company. Independent start-ups can obtain information from the SBA for projections.

Reason to Plan

Negative cash flow of $10,000, “Is a hit that a business has to weather,” in the startup period, says Drought. “A lot of businesses fail right out of the gate,” if they don’t have adequate working capital.

Drought illustrates the point with a company making $200,000 in annual sales. An initial investment of $10,000 or more may be required for operating supplies (printers, office equipment, input materials, etc.) While sales may occur during the first month, payments for the sales and delivery are not often due until the next month.

Understanding financing options can help determine what the best fit for your business is. Therefore, the best way to determine the best financing options for your sign company is to sit down with financial, legal and lending experts. SDG