Locking onto business loans: a detailed look at all the loan options you can use to finance your firm.

• Author: Woodring, Jeannie
• Position: Includes related article

You've got a great business idea. Stashed away funds to get your enterprise off the ground. Found a great location for your firm. Now all you need is a business loan to finance the rest of your project. Where to go?

Gary and Marjorie Schaefer, owners of the General Nutrition Center in Anchorage's Dimond Mall, faced this question last year when a food outlet at the mall went up for sale.

"We wanted to offer healthy, low-fat snacks like bagels and fruit juices," says Gary Schaefer. "So we first went to the place that we do business with -- the bank."

The Schaefer's bank, National Bank of Alaska (NBA), offered the couple a business loan through the federal Small Business Administration (SBA).

Joint agency programs such as the NBA/SBA effort are only part of Alaska's business loan picture. In addition, banks and state and federal organizations offer a wide variety of business loan alternatives that can fire up your firm. Take a stroll through the options outlined below, and discover what business loan options will work for you.

Betting on Banks

Business owners usually seek commercial loans from banks for one of three purposes: to start up an enterprise; to buy an existing business; or to expand an existing business (such as remodeling or adding inventory and equipment). Banks often have a different set of lending criteria for each kind of loan.

For example, suppose you want to open a new business -- that beauty shop you've dreamed about since childhood or a small service station like your Uncle Louie owned.

"New business loans are very difficult," says Victor Mallozzi, vice-president of Northrim Bank's commercial lending department in Anchorage. "You're talking about venture capital. You better come to the table with some cash or equity. A lot of small businesses are started with personal resources, with assets from family and friends. Get it started and establish a track record for a couple of years, then look for a loan."

"New loans are unproven, untried, and banks generally try to stay away from such high-risk type loans," adds Mike Minsky, vice president at Denali State Bank in Fairbanks.

If you're applying for a new business loan, get ready to provide the bank with a wealth of detail, i.e., your experience, projected cash flow, credit history and business plan.

"The business plan should clearly define the product or service, what the potential market is, how they (business owners) intend to reach that market, what the competition is, and how many employees will be required," says JoEllen Davis, manager of NBA's Small Business Center in Anchorage.

"We take a critical look at new business applications, especially cash flow projections," adds Dan Mogck, vice president of Key Bank's small business lending unit. "Are the assumptions they (business owners) are basing projections on valid?"

At other banks, such as Bank of America, most requests for startup business loans are referred to the SBA.

If you're looking to purchase an existing business, plan on providing the bank with the same kind of information you would for a startup business loan.

In addition, says Bill McGrew of First National's commercial lending department, "The best things to look for on an existing business are the tax returns. It's not likely that anyone would overstate income on their tax returns." After researching the existing business's records and returns, find out what makes the firm prosper, says Mallozzi of Northrim Bank. "Does it work because the owner puts in 90 hours a week? How are you going to replace that individual?"

If you already own a business and need...