Angela Jia Kim

Savor Beauty + Spa / Savor the Success - CEO + Founder
New York, NY

    How to finance your business with a loan

    July 19, 2012

    I love getting business questions from our members, and we always try to answer a lot of them in my blogs. One of the most frequently asked question is: How can I finance my business? 

    There are many ways to finance business: personal investment, credit cards, investors, business savings, loans, and the list goes on. I will be exploring all of these options in the coming months. 

    Today's blog focus is on getting a loan. Even if you don't need one now, please read and take notes because you never know when you will need one. It's smart to move forward empowered with knowledge.

    Many of you know that I have a boutique spa in the West Village in NYC. Business has been good, and I've been wanting to expand in Tribeca or the Upper West Side. Here are some real numbers that I am working with:

    • Rent: $10,000 to $25,000/month depending on location, size, etc.
    • Deposit: 3-6 months rent up front (you do the math... beaucoup bucks)
    • Landlord likes to see $250,000 to $400,000 in bank accounts in liquid cash (not sure if this is imperative, but it helps!)
    • Build out costs: $100,000 (give or take)
    • Design/furniture: $25,000++ 

    Yikes. Ouch. Oy.

    Remember, I don't have a sugar daddy helping me out. It's my hard-earned money, and a lot is on the line. 

    I had financed my business on credit cards (around $80K for product development, more on that in a future blog) and had paid it all off. I was now happily debt free, but in order to grow, I knew I had to either get investors (um, I had Korean parents breathing down my neck all my childhood, don't need investors doing that to me now) or get a loan to help out with these build-out costs. 

    Or I could back down from my dreams, but you know, that's not really my style. :)

    My advisors had told me that getting a loan in this economy was a very slim chance, but I mustered up the courage, put on a cute orange Kate Spade dress, and went to my bank to speak with a loan officer. 

    In the end, I asked for a six figure loan. Although I didn't get the full amount, I did get a sizeable loan. Even though I was disappointed, the loan officer told me that they were rejecting hundreds of qualified businesses and that there were certain things that I had done that made it possible to get a loan. 

    I was thinking of all of you while I signed the papers for the loan, and I picked his brain on what a business must do to set itself up to get a loan. 

    His first statement was that most businesses fail in their first two years. So if you want a loan and you are in your first two years in business, you will have to get an SBA loan. This means that the interest rate is higher. (But at least it's possible to get one!) 

    Here are the basics: 
    1. Positive cash flow is a must.
    2. No overdrawn checks. This makes a huge difference in their eyes. 
    3. It helps to have collateral of value. 
    4. Good credit rating. 
    5. Show profit and keep a "healthy" amount in your bank account at all times. 

    What I did right: 
    1. Created two businesses with both accounts at this bank. The loan officer said that since I had built two successful businesses, the first one was not just a lucky fluke. Having two profitable businesses gives them the confidence that you know what you're doing. (And make sure to have both accounts at the same bank!)
    2. Showed responsible spending and saving history. I put aside 10% of earnings into a savings account for bigger projects so there's constant positive cash flow and a "fatter" balance. If you can do this, it shows that you have a responsible relationship with money. 
    3. Developed a relationship with the loan officer. He became invested in my businesses and me, which proved to be beneficial when he went back to management to ask for more money on my behalf. I showed him photos of my store and daughter, shared future plans with him, asked him about his two grandkids... and maybe my cute orange dress didn't hurt either! :) Creating a relationship with your loan officer is a good thing. 

    What I didn't do right: 
    1. Didn't have my personal account with this bank. They want to see customer loyalty. Apparently, this could have lowered my interest rate a bit. 
    2. Didn't invest in valuable machinery or collateral. This may have helped me to get a bit more in the loan size. 

    At the very end, these were his parting words to me: Angela, I'm glad that you took this loan because as your businesses grow, you are establishing business credit, which is crucial. And in six months time, if you find that you need more to grow your business, come back and we'll see what we can do. 

    Do you have a business loan? What are some tips you can share? Comment below! 

    Angela Jia Kim is a woman entrepreneur advocate, organic lifestyle guru, doting mom, New York City (not house)wife, and author-in-the-making.

    She uses her organic skincare business, Om Aroma, to empower and inspire other business owners by openly sharing mistakes (the kind most sweep under the rug) and lessons learned (the kind most keep as secrets to get ahead).

    She believes that building business is directly tied to self growth, that it takes a village to raise a business, and that your business is meant to serve the life you want to live. 

    Read Angela Jia 's other blog entries >

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