The Keys to Successful Small Business Loans With Craig Calafati | Ep. 355
In This Article
Starting and running a successful small business requires more than just a good idea and a bit of passion. You need both strategic planning and practical knowledge to navigate the complex financial landscape.
In this episode of “Money Talk With Tiff,” Tiffany Grant sits down with Craig Calafati, an experienced business owner turned small business lender, to explore what successful entrepreneurs do differently. From building valuable connections to preparing for lender meetings, this blog captures the essential takeaways from their enlightening discussion.
Understanding the Importance of Entrepreneurial Connections
The Value of a Supportive Network
One of the first points Craig emphasized was the critical role that other successful entrepreneurs can play in your journey. These relationships can provide a wealth of knowledge and practical guidance. Craig notes, “Find people in that business, befriend them, and talk to them. They are the people that can give you advice and have navigated the road you are about to take.”
Practical Applications
Tiffany shared her personal experience with this, highlighting how her network helped her resolve a technical issue on her website. Having a support system comprised of individuals who have faced similar challenges can save you time and help you avoid costly mistakes.
Mastering the Financial Planning Aspect
Knowing Your Financial Needs
Craig finds it astonishing how often business owners approach lenders without a clear understanding of their financial needs. “Many people have absolutely no idea how much money they need,” he explained. This lack of preparation sends a red flag to lenders and can jeopardize your chances of securing a loan.
The Importance of Profitability
When it comes to financial planning, showing profitability is key. As Craig pointed out, lenders are less likely to approve loans if businesses don't demonstrate a capacity for profitability, despite what their tax accountants advise on minimizing taxes. Keeping accurate and professional financial records, often with the help of a skilled accountant, can make a significant difference.
Financial Documentation
Lenders look for comprehensive financial documentation when assessing loan applications. This includes tax returns, both personal and business, and a detailed business plan that outlines every aspect of your operations, from costs to projected revenues.
Leasing vs. Buying Real Estate
The Allure and Pitfall of Owning Real Estate
Craig has noticed a trend where new business owners feel compelled to buy their real estate as part of their business operations. While owning property can be an asset, it also ties up substantial capital that could be better used elsewhere, especially in the initial stages. “You need to hoard cash in the beginning,” Craig advises.
The Smarter Alternative: Leasing
Leasing offers more flexibility and less financial burden in your business's early stages. Craig recommends negotiating a lease with an option to buy after a few years once your business has stabilized and proved its viability. This permits you to save money and remain adaptable if the physical location proves less than ideal.
Preparing for the Leasing Process
Whether buying or leasing, being prepared with a thorough site evaluation is essential. Craig explains that landlords will scrutinize your financials as keenly as a lender would. Therefore, it's beneficial to ensure your financial information and business model are solid before entering lease negotiations.
Lending Do's and Don'ts
Show Up Prepared
One fundamental principle Craig underscores is the necessity of being prepared when you approach a lender. This means having a solid grasp of your business operations, financial needs, and a clear repayment plan. “Know exactly what it is you need, how much you need, when you're going to need it, and how you're going to pay it back,” he said.
Seek Feedback
In the event of denial, ask for feedback. Knowing the reasons behind a denial can help you address weaknesses and improve future applications. Good lenders should provide feedback throughout the application process, helping you build a stronger case from the outset.
Avoid Premature Commitments
Craig warns against signing any leases or beginning construction projects before securing loan approval. Doing so can complicate the lending process and potentially derail your loan application.
Final Thoughts
Running a successful small business involves much more than simply having a good idea. Building strong business connections, mastering financial planning, understanding the pros and cons of leasing versus buying real estate, and being prepared for lender meetings are all crucial components. The insights shared by Craig Calafati in this episode of “Money Talk With Tiff” provide invaluable guidance for aspiring and current business owners alike.
If you found these insights helpful and want to learn more, subscribe to the “Money Talk With Tiff” podcast and follow Tiffany Grant on all social media platforms @MoneyTalkwithT. For personalized advice and lending opportunities, contact Craig Calafati at Arkansas Capital.
Spend Wise, Rise High!
Every decision you make can either propel you forward or hold you back. Make informed choices, seek advice from specialists, and always be prepared. A word to the money-wise is always sufficient.
Remember: Spend wise by spending less than you make.
Navigate your entrepreneurial journey with confidence and courage, and let financial wisdom be your guiding star.
FAQs on Small Business Lending
What Financial Documents Do I Need to Prepare?
For most small business loans, you will need to prepare tax returns (both personal and business), a detailed business plan, and financial statements. Lenders may also require bank statements, licenses, and your credit report.
How Do I Show Profitability If I'm Writing Off a Lot for Taxes?
While tax write-offs can minimize your tax burden, they also reduce visible profitability. It's crucial to work with an accountant who understands this balance and can help present a clearer picture of your financial health to lenders.
Should I Buy or Lease My Business Property?
Craig strongly advises leasing, especially for startups. Leasing keeps more cash available for operational needs and offers flexibility if the initial location proves unsuitable. Negotiate a lease with an option to buy after a few years.
What Should I Avoid Doing Before Getting Loan Approval?
Avoid signing leases, starting construction, or making any significant financial commitments until you have secured loan approval. These actions can complicate the lending process and potentially invalidate your loan application.
How Important is Having a Business Plan?
A well-thought-out business plan is crucial when seeking a loan. It should cover every detail of your business operations, from operating hours to financial projections. A thorough business plan demonstrates to lenders that you understand your business and are prepared for the challenges ahead.
Connect with Craig
EVP, Director of Lending at Arkansas Capital (CDFI)
Website: arcapital.com
