Newbie, need Help with starting my business, what am I missing??

[2B-The-Best]

Good afternoon everyone, ( I am now to the point of joining every Small Business forum to hopefully find that one missing piece of the puzzle) I am new and hopefully this forum can help me. I feel I am ready to start my business, but every time I go to the bank they, say they are not borrowing at this time. (Little back round) I am trying to build a 6000sq. ft. Salon,(from the ground up) I have been working on this for just over 2 years and here is what I got so far.
I have my LLC
I have the business name and logo which is trade marked
I have my tax ID
I have purchased the property and still paying on it (I have been paying for 2 yr)
I got it re-zoned business property, over a 1yr ago
I have drawings , that a builder did for me, and he gave me a price to build.
I have a 1/25 scale model built of the building.
I have had the land surveyed and have those drawings.
I have a 1inch thick business plan.
I have my own website page and domain name.
Credit scores are 803, 817, 821
But I can't get a loan, I am asking for $600,000 that is including the balance of the land loan (85,000) and the equipment as well (10,000) I am willing to put up, the business land it is going on, I have another piece of land (that is clear and free, I owe nothing on it 1/2 acre with lake access. Plus I have my home as well to put up, still owe on that but I have equity in it about 20,000 and I have a savings account with only $5,000 to put down, I know it's not alot of money, but remember, I have payed for everything mentioned above!!
Can some one help with Ideas, I am all ears!!!!

[boogle]

You need more cash upfront. I would get rid of the 85,000 for the land loan (maybe reconcile loans afterwards), sell the half acre if you can, hopefully with lake access that can fetch a decent number, and then bring your loan down to a much lower number. If your planning on putting your house up against the loan anyways, hopefully that can cover the loan expense.

No I certainly do not know anything about the Salon business, but half a million sounds pretty high since you already have the location. I have a friend of mine that performed an amazing renovated a 6,000 sq. ft. building on the square. He put so much into it the mayor awarded him with a historic beatification plaque at our annual state of the city address. His total costs (I know renovating is different, but it is not always cheaper) was "350,000" and that included buying the building! I know I am getting off topic from your question, but I am pretty sure the problem you are running into is your loan is to big for the bank to give it too you, so maybe cutting back some of those costs and getting your loan down to about half that could help you get the loan, and make business a lot easier.

[Spider]

I see no reference in your description concerning how you will repay the loan, and I see no indication of collateral even approaching the amount of the loan. These are probably the most important aspects that need addressing.

[2B-The-Best]

Thanks Boogle & Spider for responding, yes I need to explain more about my business. First Boogle, the price as mentioned, $600,000 price tag, after you minus the balance of the land owed & equipment the building price tag is $505,000 that is under 100 dollars a sq. ft. (everyone I have talked to said that is a good price for a Commerial Building to be built (the big costs is the fire sprinkler system) now I realize that the price could even be a little cheaper with the economy even slower then when it was bidded. The piece of land that is free and clear, I will be building my future home on it, it is less then 5 minutes from the business land (but I want to build my business first) I have tried all different ways to get the debt off the business land, but don't have enough equity to put it on my home (I know this because I just did a refinance to a 20yr on my home) This also put my debt to income ratio down to 39% it was at 43% before. Now I realize this helps very little (but that they look at that, when it comes to the worst case that I have to pay the business loan if money isn't coming in)
As for Spider here more info on the business, this 6000sq ft Salon will have 20 seperate suites, which will be leased (10 "double" hair suites, 2 "double" Nail suites, 3 "single" massage suites and 5 "single" hair suites) All double suites are going to be leased for $920 a month and all single suites are going to be leased for $650. (which I must add are priced lower then the going rates) I forgot to mention I already have letters of intent for a couple of the suites ( I included these in my business plan as well incase the bank would like to contact them) As you every suite would be furnished but the tenant would supply their own clients and products, so they are leasing the suite and in a sence running their own business in a business (kinda like a shopping mall is run). Because of this I would not be collecting a paycheck from the business the first 5yrs (which is in my 5 yr business plan outlook) I would retain my current job, which brings me back to getting funding. I don't qualify for SBA 504 program, because it is Commercial Real estate, which I would have to occupy 50% of the building, The area I am in the average income is to high that it doesn't qualify for any kind of Wheada, and as for a straight business loan, no bank wants to do that without some sort of goverment guarrenty. No angle network or venture capitalists want in (not enough money to be made) I have family and lots of friend with no money! (so that is out) So what am I to do. I realize that I don't have enough assets or cash to equal the amount to borrow, but isn't there anything in the new Small Business Bill just pass that can help. Just for the record, I am a white male, so I don't qualify for any woman or minority grants or special loans..
I hope I gave you both a little more information and I am open to more ideas from everyone here!!!!

[nealrm]

2B - There are a couple of things that stand out from what you have told us, and some things that are missing. First you state that your suites will be priced at less than the going rate. So I am assuming there are others offering similar suits. What are their occupancy rates? In most areas, commercial occupancy rate are not good. In general you can rent a commercial property at or below cost. That may be why the banks are turning you down.

In your business plan, are you showing numbers based on 100% occupancy. If so, cut that number by 75%. Also increase all your expenses by 10-15% and decrease income by the same. Banks like business plans that show you can repay the loan even at less than the full potential of the business.

Another issue is that you are asking the bank to loan you money a lot of money for your part time job. Think of it from the banks view - You are going to work 40+ hours each week on your regular job. Then in your spare time, you will run this other business. Given that many, many business go under with FULL time manager, how can you show you will succeed working only part time.

Also, look around. How many salons have thier own building? In the areas that I have lived, I cannot think of a single one. Most are in buildings with other businesses.

You may also be giving the bank an impression that you are not frugal with money. Why build a 600,000 commercial property when you can pickup one for less. Plus, you spent money on trademarking your business name and a scale model. Nether of these were really necessary.

In general banks will loan money if they are sure they will get it back. That means either the business is such that it can succeed even in a worst case event or some they can hold onto if you don't pay the loan. Right now using property as security on a loan is iffy. The property will need to be worth much more than the loan itself.

Have you really looked at try to start this out without a loan? Yes you would have to start out smaller, but your overhead would also be smaller. As the business grows you can put the profits back in.

[Steve B]

If I were the bank, I wouldn't loan the money. Banks want a practical guarantee that the money will be paid back. They want you to be taking the risk on the business succeeding, not them. You don't provide nearly enough equity for them to do this. If you fell off the face of the earth the day after you got the loan, what would they be able to sell to get all of their money back?

I'm guessing you're going to have to start out much smaller, or find a relative or investor with a lot of confidence in you to loan you the money. In high risk loans like that, you can expect to pay a much higher interest rate.

[nealrm]

Never borrow from a relative. If things go bad you will never be able to sit at the same table again. If things go good, they will want to backseat drive your business. Go with an investor, then aleast you can dump them by buying them out.

[SEOHelp]

Don't forget when you have everything in place you have to start from day one with your marketing efforts. That way, it will be ingrained in every decision that you make as you go forward. If you want people to find your business online and off - you really have to prefect your online and offline marketing efforts as soon as possible.
Trust me - I spent years building my business first then working on trying to market it online - and got no where. But, when I started my last business and focused on marketing from the very beginning, I finally found the success I was working so hard for.
Good Luck with your new adventure.

[phanio]

You mentioned in your first post all the things you spent money on like a 1/25 scale model and this and that. That was money well wasted. You seem to have spent your money going around the issue when the main issue was the building - bet you wish you had those funds back.

You have two options as I see it:

1) Scale down. Raise what you can raise and start smaller - then build up as the business grows. It takes understand of how small you can start - getting those funds then growing. No successful business starts out as a power house - they start small and grow.
2) instead of seeking one single loan - break your needs down. Let's say you can scale down and get started with only $75K - half to build or have a structure placed on the lot and the rest for equipment and marketing. Seek out an equipment loan for the equipment - that will reduce the amount you need for the others. Use the structure for collateral on its own loan - then whatever remains - seek an unsecured loan. This will make you life much easier and make it easier to qualify for each loan ($600K is too much for most lenders to a new business with little or no collateral).

Banks (all lenders) look for 2 main things. 1) Your willingness to repay - based on your past credit history. And, 2) your ability to repay the loan - with current cash flow - not what you think you will earn in the next few years - but cash flow today. It seems this is where you are lacking.

If you start smaller - by leveraging those assets you do have and start to build your cash flow - then you have a chance at a long term business. But, the way you are going now is in circles. Think about it this way. You start smaller and build your business - in 5 years you have a solid thriving business. Or, continue on your path now and in five years you have defaulted on what you do have and have nothing left.

[2B-The-Best]

Good morning or should I say Good afternoon, Thanks for your answers they are helpful and I will try to answer a couple that I have considered. As for the price tag and scaleing back I have (GULP) yes the $505,000 for the building is the price with building it in 2 phazes. You see the the building has a part exposed land, it will expanded into the basement, so instead of future expansion going out, it would be downstairs, so this price tag is to complete the first floor only, (9 suites 5-doubles hair, 1-double nail, 2-single hair and 1-single massage) the down stairs would only be ruffed out and drainlines put in. This help in 2 ways: 1)cut the price down,and 2)when the downstairs could be worked on without disturbing the flow of the business on the first floor. I realize you have all brought up "real problems" and I understand them. But I wanted to make sure in my business that I never want to "expand outwards and onto", especially in this kind of business women always want things clean (no dirt or mud) easy parking (not materials laying in areas) and no loud noises. (and I didn't want to post signs sorry for the construction) So with that in mind, the only thing to cut the price was to do it in phazes.
So here I sit, paying on the business land. Like I said above I could probably get the price down because of the economy, but not 70,000-100,000. And as we all know trying to save money at a fast rate doesn't happen, Plus I have been putting extra principle payments to the land loan, because it is on a balloon loan which comes due Feb. 8, 2012. And I know it will not be payed off by that date even at the rate I'm making extra payment.

So with this said keep the ideas coming. I am willing!!

My question is : WHAT SHOULD I DO NOW, the only thing I come up with is continue to paydown the business land loan, which isn't saving any money to have and show the bank when I go to them again, when they ask "So John, how much money do you have saved now? I reply the same $5,000 but I knock down the balance on the land loan? You see where I am going with this.
So let me know what you think I should do next. I am all ears!!!!

[nealrm]

All the comment above have been nice and polite. Based on your last reply, I am going to be a little more direct. BANKS ARE NOT GOING TO LOAN YOU MONEY UNLESS YOU CAN SHOW THEM HOW YOU WILL PAY IT BACK. What you should do now is come up with a business plan that shows them in real terms how you will pay them back, why you are not a risky investment and that you have fully investigated the market. If banks have repeatedly rejected your loan application, there is a good chance that your business plan does not show what you think it does. They beleive that your income is over estimated, your expensives are under estimated, there is too much risk or all the above.

Many SBA offices will have someone that will read over a business plan and tell what is good and not good. If the local office doesn't, talk with the local business school. A professor maybe willing to look it over, or maybe have the class use it as a case study. Either way, it will serve as a reality check on your numbers.

Good luck.

[huggytree]

i also dont think you'll find a bank willing to loan anytime soon

$600,000 is alot to loan...most businesses fail......odds are against you..especially right now

i wouldnt start any business now...i know alot of small business people...1 or more fail every month....if it keeps going ill be out of friends in a year

(the only ones who fail always seem to try to be the low price)

wait until things improve...it may be 10 years...save your $$

i started my business 4 years ago...when the economy was going down hill fast.....if i had to do it from scratch right now id fail for sure....i had a few years of so-so economy to build up and get known....all the startups i see now are side job priced..people who are just trying to survive taking any $$ they can

[Steve B]

I think you could have the world's best business plan and you won't find a bank to loan you money. Banks are realists, they want collateral. Writing a great business plan is easy - it's the execution of the plan that they will be worried about (unless you are a Donald Trump with a track record of starting other successful businesses in the past). It would be an angel investor that might be willing to take the risk on a really awesome business plan that seems really really sure to make everyone involved a lot of money (which I don't think you have).

To answer your question of what you should do next, I suggest selling what you currently have and buying a place that is already established. This way you can do it with cash and avoid the bank altogether.

[boogle]

Another option is to make your first phase much more affordable. Start off with a 1000 sq. ft. space that is expandable, but that you would only need $100,000 for instead of $600,000. Build your name and find the best tenants and if you can be successful there, you have a lot more to show for yourself going to the bank asking for the next loan. I think the consensus here is you are not going to get a $600,000 loan, no matter what. If I had to guess, I would say there is no business plan that is going to get the bank to give you that large of a loan when you are already tied up in land and only have $5,000. If you ask for a $100,000 loan and have the collateral plus at least 5% in cash, you have a lot better of a chance.

[Harold Mansfield]

I have to agree that banks aren't giving up any cash. They don't invest in businesses, they invest in themselves...collateral that say's they have a fall back to recoup funds. The only way I see you even having a shot at some funds is if you have an already existing business with money coming in and you need funds to secure inventory for an existing deal or client.

$600k is pretty much out of the question without having at least $500k in collateral or some kind of worth somewhere. You can't even get a home loan for that much with only $5k down.
I suggest reworking your numbers and starting smaller. You can also visit your local S.C.O.R.E. office and get some valuable information and insight there as well.

Showing them on paper how you plan to pay them back is not going to be good enough because it is not a definite that all will go as the business plan says.
If you were able to say something like, "I already have contracts secured for this much work which will bring in this much money" you would have a better chance.
They are not going to loan you money for operating expenses while you build a business and hope that it takes off, especially since you have no previous relationship or track record of success.

[2B-The-Best]

Thanks everyone and sorry to get back to you so late, believe me I like everyones honesty. I have had a SCORE mentor for over a year (and still have him)and we knew it would be a little up hill battle, since we were in a very bad economy. Plus we also knew that they didn't want my residental lot or my home as collateral, they said they would only use the business land and cash. So we knew we would have to have letters of intent. Now I need 14 actual chairs lease to break even of the 18 chairs in the first phaze(which is 78 percent) and we knew this was to high of expectations (in the banks eyes)so I started marketing and getting the buzz and I got 4 letters of intend to lease.(which I included into the business plan) I know I could get more if I had the bank behind it, all I have is my business plan, building drawings, surveys and 1/25 model (and was able to get 4 people on board) image if I could be breaking ground then I know I would have more lined up before it is up and running.


I agree with all of you about maybe shrinking it down to bring the price lower, but lets be real the going rate for a Brand New in our State for a (regular home built) starts at 285,000 and so to get a business built at a cheap price is still going to be over $300,000.

I will continue to look at other options from anyone, so I will continue to pay down the land as for now, but if you have more ideas keep them coming.

[Harold Mansfield]

Here's an article that you may be interested in:
States to receive $1.5 billion for small businesses - Yahoo! News (http://news.yahoo.com/s/nm/20101008/bs_nm/us_usa_states_smallbusiness)

[Harold Mansfield]

The one thing I noticed about your plan is that it seems to start at the top.

6000 sq ft. is a very large salon and most people without any money start small with what they can afford, build it up and expand. Also most would start with an already existing building instead of building from the ground up.

I'm not saying it's a bad plan, but it's the type of plan that people attempt to execute that actually already have the money to pull it off.
A couple of guys that I worked for owned (at the time) 13 video poker bars in Las Vegas. The company has since been sold and has something like 32 bars now.
It didn't start that way. they started by taking over an already existing bar, built it up and then took over another existing bar. Cheap. Much cheaper than the $2 million it takes to build and open a local bar from scratch.

Years later, they were able to start building new bars from scratch, but it didn't happen over night. They started small with what they have and built it up.

If you are going to pull it off at this magnitude, you are going to need a partner or private investor...which means giving up some ownership share.

[Spider]

Best idea so far is Harold's.
... they started by taking over an already existing bar, built it up and then took over another existing bar. Cheap...!.Cheaper than cheap! - because, from what you have told us, that's the only clear route available to you.

You have a good start - clearly defining your dream and even going so far as to make a scale model of your dream. Now, step back and figure out how you can reach your dream from where you are at this point in time. If the dream is worthwhile, it will take more than a single step, which is what you are trying to do now. There will be many steps, and the first step is get into the business. Get a job in the industry and learn it. (I don't recall you having said you know anything about this business, so far.) And save every penny you can.

Then, when you know more about the business, and have saved some capital, start looking around for an existing business to buy, cheap. Improve it, spruce it up, make a profit. Prepare to prove to any future investor that you kow this business and can do what you promise.

When you have saved enough of the profit from the first business, buy another, cheap. And another.....

Before you know it, you will know the business, will know exactly what you are doing, and will have the resources and the contacts to be able to do it. Then, blow the dust off your model and get cracking!

[gabearnold]

First off, that's a huge junk of cash. I've only seen that much handed out once, and it was to my grandfather who knew every banker in the building. So here are some tips, and ideas:

1. If you aren't best friends with 10 bankers in 4 different banks then you probably don't have a shot. Remember, people lend to people. In my short 12 year career I've always managed to get what I need using the most important currency I have. Relationships.

2. Try a hybrid approach. Get together seed money from private investors, family, and friends, and put up $250,000. Go back to the bak and see their eyes light up when you are willing to put down that much. They'll see how vested you are and they have to take is seriously. Get a really good accountant, maybe a separate one from your main one, to write up an agreement and loans. You probably want to get an attorney for this too.

3. Open the doors and start somewhere. When the bank sees that you can make it happen without the their cash, again, they'll be interested in talking to you. I have personally started every venture I've done with my own capital. Sweat and cash.

4. Last, remember that financing is just one piece of the puzzle. It's NEVER a stopping point for someone who chooses to be successful.

Go for your dreams and don't let anyone stop you. Just be sure you have a strong team around you and lead from the front by reading the most, learning the most, and driving your company forward.

[2B-The-Best]

Thanks Gabearnold and everyone else, I have been doing your number one suggestion for about 2 years, I have the business land loan with them, the payment is 671.00 month and I have been paying 800.00 every month to build credibility with them. You see my main bank I have used for almost 22 years doesn't do commercal business lending. I wish I would have known this back then, so now it's like I'm starting all over again, but as a positive the bank president of my main bank, said I could list him as a reference with his personnal number.

As for a lot of the suggestions about getting, private investors, family or friends. I don't ask yet, because I don't have answersa to these questions in my head. The main one, what kind of interest do I pay them on their investment and the big thing I ask myself, let's say "as a Example" 2 people give me 50,000 each for 5yrs...
One as mentioned above, what is fare interest that people would want back on their money
and
Two, who would want to invest with realizing that you would get nothing for the first yr, because it would take about that just to get everything with a final approval from the city and the building built and running.

Any suggestions to these 2 questions before even approaching anyone about investing?????

[Lyrafire]

I would listen very carefully to these two remarks:

"BANKS ARE NOT GOING TO LOAN YOU MONEY UNLESS YOU CAN SHOW THEM HOW YOU WILL PAY IT BACK. What you should do now is come up with a business plan that shows them in real terms how you will pay them back, why you are not a risky investment and that you have fully investigated the market." (eBorg9)

"Years later, they were able to start building new bars from scratch, but it didn't happen over night." (eBorg9)

Aside from concrete data, one of the things the bank will look at is your experience, which is going to work against you. They won't care about your sincerity. You will first need experience running a business, and then you'll need to be an experienced landlord. Start small in an established building to gain experience.

[ruth]

To answer your question of what you should do next, I suggest selling what you currently have and buying a place that is already established. This way you can do it with cash and avoid the bank altogether.

This is what I would do.

[dumsy22]

Don't forget when you have everything in place you have to start from day one with your marketing efforts. That way, it will be ingrained in every decision that you make as you go forward. If you want people to find your business online and off - you really have to prefect your online and offline marketing efforts as soon as possible.
Trust me - I spent years building my business first then working on trying to market it online - and got no where. But, when I started my last business and focused on marketing from the very beginning, I finally found the success I was working so hard for.

[huggytree]

I agree with all of you about maybe shrinking it down to bring the price lower, but lets be real the going rate for a Brand New in our State for a (regular home built) starts at 285,000 and so to get a business built at a cheap price is still going to be over $300,000.

I will continue to look at other options from anyone, so I will continue to pay down the land as for now, but if you have more ideas keep them coming.

i think you could buy a partially run down mini golf place for much less than $300k....much less.....then redo/update it......its like a used car....if its 15 years old it could be a fraction of what it costs new.....especially in a bad economy