Financing Your Future - Tire Review Magazine

Financing Your Future

In a perfect world small businesses would have enough capital to fund any renovation or new construction project they wished to pursue. Buildings would never be run down, shops would use the latest equipment technology, and operating space wouldn’t be an issue.

But this isn’t a perfect world. Construction costs can add up quickly and not every small business has enough free capital to fund a project without bank financing.

According to banking professionals, there are almost as many small business loan options as there are financial institutions. With a plethora of options, applying for a real estate/construction loan can be overwhelming. Yet, it’s important for tire dealers looking to renovate a location, or build a new shop, to understand their financial options as well as what it takes to secure a loan.

“Know your financing options for real estate,” advises Jim Seitz, communications manager for small business at Wells Fargo. “Talk to your banker. Do your research. Have that conversation with the banker to find the best option for you and your business.”

One route business owners have for financing a construction project is a Small Business Administration (SBA) guaranteed loan. However, businesses may opt also to work with a bank without SBA backing.

Types of Loans

Scott Wolffis, director of business banking at Huntington Bank, outlined a few loan options that could be offered to small business owners. Options include a conventional 15-20 year real estate mortgage, a small construction loan, an equipment loan, a draw period and even an interest carry on a loan.

“What we really try to do is tailor loan options toward the customer’s needs,” he shares. “If they are just doing some storefront changes we’ll probably just provide them with an end loan…If they are doing a ground up construction, starting from scratch, we’ll provide a longer-term construction loan and an end mortgage for that as well.”

An interest carry or a loan with a draw period allow businesses construction flexibility. An interest carry allows the interest to be built into the loan so a business doesn’t have to pay interest right away, while a draw period lets a business work on construction in increments, Wolffis says.

“Let’s say for example you have a store that wants a $100,000 loan, but construction might have an impact on the customer’s ability to walk into the store and the ability for sales during that time,” he explains. “We might do an interest only draw period if they don’t need the funding all right away. They’d be taking the loan in small increments at a time. They may need $10,000 here, $20,000 there as they do the improvements. That way they’re not paying interest on the whole thing up front.”

If a small business chooses to get an SBA guaranteed loan there are two different financing options available: CDC/504 and 7(a).

A 504 loan can be used for the land and buildings purchases and the construction of new facilities as well as renovating existing facilities and purchasing equipment, according to the SBA.

“The 504 program is really a great program from the standpoint of the bankers,” shares Gil Goldberg, district director of the SBA’s Cleveland, Ohio, office. “What we do with the 504 program is usually take a second lien and the bank takes the first lien.”

Goldberg shares, too, that for a small business a 504-backed loan can mean a smaller down payment.

“So if you’re looking at let’s say a $100,000 deal… the borrower comes up with $10,000. Most of the time if a bank is doing a real estate deal they would require the borrower to put in much more than $10,000. They might require $30,000 or $40,000,” he says.

A 7(a) loan can provide long-term working capital that can be used to pay operational expenses, accounts payable and purchase inventory, according to the SBA. Additionally, this funding can be used to purchase real estate and equipment and be used to establish a new business or expand an existing business.

“A 7(a) loan typically works very well if there’s an existing dealership and they wanted to do a small building expansion or an expansion by adding a few pieces of diagnostic machinery and then hiring three or four additional people – which would be considered more working capital than real estate related planned expansion,” Goldberg explains.

Last year alone the SBA supported more than 69,000 loans totaling $28 billion, according to Goldberg.

“The greatest advantage to an SBA-backed loan is that by guaranteeing a loan, SBA reduces the risk for the bank making that loan, and therefore the bank may lend in circumstances when it might not normally do so,” he says.

The banks agree that SBA secured loans can help small businesses.

“Some transactions and loans that are borderline – we might not have quite enough collateral – the SBA allows us to do that loan. It gives us a little backing in that regard,” Huntington’s Wolffis says.

“Let’s say the appraisal came back lower on a property, we can still do that loan for that customer because we have the SBA backing,” he elaborates.financing

The bankers also note that an SBA secured loan offers other benefits for the small business as well. The length of a loan’s terms could be increased, the small business could secure a fixed rate and businesses would need to provide less cash up front.

“SBA loans really offer a number of benefits for a borrower,” Wells Fargo’s Seitz says. “Some of those include reserve cash; if you don’t want to put a large down payment. Another advantage of an SBA loan is if you have a shortfall of collateral to secure a loan. Or you need a longer term.”

Seitz also notes that an SBA-backed loan offers small businesses the flexibility to combine real estate, renovation, and equipment financing into one loan.

There are several requirements a business must meet to be eligible for a CDC/504 or 7(a) loan. The SBA does not provide loans; loans are brokered through a certified development company and bank. For full program eligibility, visit your local SBA office or

Before You Apply

There is a lot of prep work a small business can do prior to applying for a loan.

“Prepare as much of that information as you can get up front and have ready to go. That makes it much quicker to sit down with a banker prior to the loan process,” Huntington’s Wolffis advises.

First, a small business should get its financial information together and correct any problems that exist.

“You want to get your financial house in order,” Seitz says. “Check your business and personal credit profile. You want to correct them before you apply. You also want to make sure you gather all of you business records; tax returns and financial statements.”

There are three major U.S. credit bureaus that compile business credit scores: Experian, Equifax, and Dun & Bradstreet. Just like personal credit profiles, businesses are able to access these scores for free annually.

There are a few major things banks look at when it comes to a business credit profile: the amount of credit a business is using; the amount of credit still available; and the debt load.

“In general we encourage business owners to build a credit profile before they need credit. In some cases, businesses may seek credit after they are facing a business challenge, which could affect their credit profile and make their credit application weaker,” Seitz shares.

Wells Fargo offers a “Business Credit Center” at for all small business owners to help them manage their credit.

In addition to getting the business’ finances together, Huntington’s Wolffis suggests having a clear picture of the project.

“A business should have a scope of the project they’re wanting to work on. If they know they’re going to do $20,000 in renovations, they should have a budget for that. Lay out what’s going to happen there,” he shares. “They should really think about what type of monthly payment will fit into their budget, too.”

Both experts suggest talking to a banker sooner, rather than later.

“Talk about your credit need with the banker well before you need the money. That gives you time to weigh your options and really prepare the best application. You want to be able to apply when your finances are at your strongest,” Seitz says.

“Get to your banker early,” Wolffis says. “Recognize that the bankers are there to help and that they want to help. They’re invested in making the process work.”

“It doesn’t hurt to go in and talk to the banker beforehand and have a conversation about their project,” he continues. “We might be able to provide them additional resources to help them as well.”

Wolffis says the bank can help small businesses get a second opinion on construction costs and appraisals as well as help facilitate a meeting with an SBA specialist, among other things.

“We try to help them along that process because renovations and construction can be tricky if you haven’t done it before,” he says.

If a business is applying for an SBA loan, they may also need to prepare a business plan.

Businesses needing extra help preparing a plan or gathering finances can visit an area SBA SCORE office for free assistance.

Applying for the Loan

Wells Fargo’s Seitz says there are some key topics a small business should come prepared to discuss when applying for a loan.
First, a business owner should be prepared to discuss how a loan will be used. Second, the business should be able to discuss its credit history.

“Every lender is going to want to work with a business owner who pays their obligations on time and has good vendor relationships,” Seitz says.

The last thing that’s looked at is company finances, Seitz continues.

“You want to demonstrate your ability to repay a loan on time. That’s particularly important for an unsecured or larger loans,” he says. “It’s really a good idea to provide cash flow projections for at least a 12-month period, that’s going to show you’re on top of your finances and help you account for seasonal variations in your business.”

Seitz also stresses the importance for a small business to complete an application in detail.

A typical application will include, but is not limited to: personal financial statements, personal tax returns, business tax returns, interim business financial statement, construction budgets and a business plan. Depending on the loan size and amount, banks may request more information.

“If it’s a larger loan we’re going to want to know who the builder is,” Huntington’s Wolffis says. “We will want to know who is going to do the renovations and want to make sure we’re qualifying the builder for the customer.”

“One of the challenges with construction is you get into a project and there are costs and overruns that the builder didn’t foresee, and you run into all sorts of problems. So we try and stop that before it happens by making sure the builder has a strong reputation is qualified and can do the job,” he continues.

If a business is applying for a guaranteed SBA loan, the small business will have to follow the set of SBA application guidelines. The business will have to fill out SBA Form 1919, Form 912 and Form 413. Additionally, the business will have to provide financial statements, ownership and affiliations, loan history and a business overview, among other criteria.
A complete checklist for SBA loans can be found on the SBA website.


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