Advice & Resources

A business plan clearly describes your company, analyzes the market, details products and services, explains how you intend to operate, and provides research that supports these conclusions. Financial documents include a personal financial statement, balance sheet and profit-and-loss (P&L) statement·

The SBA provides the essentials of writing a business plan, including an outline and a template.

Here is a listing of dozens of options for Colorado banks, each with its own application process and funding guidelines. Open a business account with the bank of your choice to begin the banking relationship and discuss the needs and prospects for your business.

• Develop a relationship with your lender – let your lender see your commitment
• Get your personal house in order – be in the process of addressing any personal financial issues before approaching a lender
• Be familiar with your business plan – lenders will ask a lot of questions (mission, vision, marketing, operations, management/administration and finance)
• Don’t be afraid to share your ideas – your network will provide valuable input
• Assemble and consult with a strong team of professionals – legal, accounting and banking – early in the process

• Be up front with lenders, explain what you need and why
• Be very specific in your loan request – clearly state how the funds will be used
• Be prepared to discuss “what if” scenarios – everything from “what if my business grows more quickly than expected?” to “what if you build it and they don’t come?”.
• Project out 3 – 5 years on your business plan – this allows the lender to understand your long term needs

• Find a mentor or business coach – many organizations provide free or low cost support services
• Recognize you are looking to become a business owner and consider what that entails (administration, finance, human resources, marketing etc.)
• Network with other small business owners and leverage their advice

Ask your banker why you were turned down and what it would take to get a “yes” so you can learn through the process and find the right lender for your business situation, which may be another bank or alternative financing.SmallBizLending.org lists six questions to help you get the answers you need to succeed.

You may want to ask your banker about these public and nonprofit lending options:

· CDFIs and micro-lenders (see Colorado Lenders Grid)
· Guaranty programs (SBA 504 and 7A loans)
· Business loan funds (available for rural areas)
· USDA loans (available for rural areas)
· State/city/county small-business lending programs

According to SBDC and the Colorado Chamber, Colorado ranks:

• #2 in women business ownership
• #6 in business creation
• #7 in small business ownership
• #7 in microenterprise ownership

Small businesses make up 97.6% of all businesses in Colorado.

PLUS…More than $58 billion in wages are paid annually by small businesses.

AND… More than 48% of Colorado’s employees work for small businesses. Colorado small business employment grew by 34.9 percent between 1996 and 2020, exceeding the national small business employment growth rate.

21% of all bank loans in Colorado are to small businesses, according to the Colorado Bankers Association.

The banking industry is the largest supplier of credit to farmers and ranchers – at $2.3 billion in Colorado, according to the CBA.

Small businesses are an engine of growth and job creation for the U.S. economy.

• Small employer firms, those with 1–499 employees, are vital to the fabric of our local communities. They account for 46% of the private-sector workforce (61.7 million employees) and deliver 43.5% of the United States’ gross domestic product.
• From 1995 to 2021, small businesses created 17.3 million net new jobs while large businesses created 10.3 million. Small businesses have accounted for 62.7% of net new job creation since 1995.
• In order for small businesses to grow, they require safe and reliable funding. Loans from banks help small businesses get established, stay in business or expand.
• Banks are critical partners to small businesses. They hold most small business loans on their balance sheet, meaning they have a stake in the continued success of every one of their small business customers.

Banks remain the most common source of credit for small businesses.

• Per the 2024 Small Business Credit Survey, firm revenue and employment growth held mostly steady year-over-year, but most firms—more than 9 in 10— reported experiencing either a financial or operational challenge in 2023. With respect to financing, the share of firms that applied for loans, lines of credit, or merchant cash advances declined year over year, though approvals showed little change.
• Firms surveyed in 2023 held higher amounts of debt than firms surveyed in the years leading up to the pandemic. While the share of firms with debt outstanding in 2023 was nearly the same as in 2019, firms with debt are holding higher amounts. Thirty-nine percent of firms had more than $100,000 in debt outstanding at the time of the survey, up from 31% in 2019. Forty-four percent of firms received a US Small Business Administration (SBA) COVID-19 Economic Injury Disaster Loan
  (EIDL); 28% had an outstanding balance at the time of the survey. More than half of all firms (54%) said that higher interest rates were contributing to increased debt costs.
• Demand for loans, lines of credit, and merchant cash advances declined between 2022 and 2023, while approval rates remained steady year-over-year. Application rates for loans, lines of credit, and merchant cash advances in the 12 months leading up to the survey declined 3 percentage points between 2022 and 2023, falling from 40% to 37%. About half of applicants (51%) were fully approved for the financing for which they applied. While the share of applicants fully approved was higher than the pandemic-era low of 46%, it remained below pre-pandemic levels.

source: Federal Reserve and United States Chamber

Angel Investor

An individual who provides financing to a start-up, either in exchange for convertible debt or equity.

Asset-Based Loan

An asset-based loan is a loan, often for a short term, secured by a company’s assets. Real estate, accounts receivable (A/R), inventory, and equipment are typical assets used to back the loan. The loan may be backed by a single category of assets or some combination of assets, for instance, a combination of A/R and equipment.

Credit Card

A card entitling the owner to use funds from the issuing company up to a certain limit. The holder of a credit card may use it to buy a good or service. When one does this, the issuing company effectively gives the card holder a loan for the amount of the good or service, which the holder is expected to repay. Most credit cards have variable and relatively high interest rates on these loans. Credit cards also have a limit, which may be raised or lowered depending on the creditworthiness of the card holder. Most analysts recommend treating a credit card as a short-term loan, as allowing the interest to compound for too long may result in dire financial straits.

Credit Line

A credit line, or line of credit, is a revolving credit agreement that allows you to write checks or make cash withdrawals of amounts up to your credit limit. When you use the credit — sometimes called accessing the line — you owe interest on the amount you borrow. But when that amount has been repaid you can borrow it again.

A home equity line of credit (HELOC) is secured by your home, but other credit lines, such as an overdraft arrangement linked to your checking account, are unsecured. In general, the interest rate on a secured credit line is less than the rate on an unsecured line.

Crowdfunding

Crowdfunding describes the collective cooperation, attention and trust by people who network and pool their money and other resources together, usually via the internet and social media, to support efforts initiated by other people or organizations. Another aspect of crowdfunding is tied into the United States of America JOBS Act which allows for a wider pool of smaller investors with fewer restrictions.

Factoring (Accounts Receivable Financing)

The selling of a firm’s accounts receivable to a third party, known as a factor. If a firm is not confident in its ability to collect on its credit sales, it may sell the right to receive payment to the factor at a discount. The factor then assumes the credit risk associated with the accounts receivable. This allows the firm access to working capital immediately, which is important especially if the firm might otherwise have a cash flow problem. The price of accounts receivable financing is determined by the creditworthiness of the firm’s customer, not of the firm itself.

Lease

A lease is a legal agreement that provides for the use of something — typically real estate or equipment — in exchange for payment. Once a lease is signed, its terms, such as the rent, cannot be changed unless both parties agree. A lease is usually legally binding, which means you are held to its terms until it expires. If you break a lease, you could be held liable in court.

Mezzanine Financing

A type of debt financing whereby a company issues debt that the holders may convert into equity if the debt is not repaid in due course. This debt carries a high interest rate, as there is little or no collateral, but it is low-risk compared to other forms of debt financing because of its convertibility.

Microloan

A form of lending that originated in the 1970s with small loans made to very small enterprises in Bangladesh, called micro-enterprises, with the intention of alleviating high poverty levels. Microfinance institutions (MFIs) issue micro-loans that have higher-than-normal interest rates meant to cover the high costs associated with issuing small loans. Given that the purpose of microcredit is to be a poverty relief mechanism, individuals with low credit scores who lack capital and steady employment are then able to receive loans to develop their enterprises.

SBIC

The SBIC Program is one of many financial assistance programs available through the U.S. Small Business Administration. The structure of the program is unique in that SBICs are privately owned and managed investment funds, licensed and regulated by SBA, that use their own capital plus funds borrowed with an SBA guarantee to make equity and debt investments in qualifying small businesses. The U.S. Small Business Administration does not invest directly into small business through the SBIC Program.

Secured Loan

A secured loan is a loan in which the borrower pledges some asset (e.g. a car or property) as collateral for the loan, which then becomes a secured debt owed to the creditor who gives the loan. The debt is thus secured against the collateral — in the event that the borrower defaults, the creditor takes possession of the asset used as collateral and may sell it to regain some or all of the amount originally lent to the borrower, for example, foreclosure of a home.

Tax Increment Financing

TIF is a public financing method which has been used as a subsidy for redevelopment and community improvement projects in many countries including the United States for more than 50 years.

Unsecured Loan

A loan that is not secured by an asset or lien, but rather by all of the issuer’s assets not otherwise secured. This means that an unsecured liability carries no collateral.

Venture Capital

An investment in a start-up business that is perceived to have excellent growth prospects but does not have access to capital markets. Type of financing sought by early-stage companies seeking to grow rapidly.

Please note that this information is not intended to be used in place of a consultation or advice of a financial professional.

4 questions you need to answer in a business plan:

1. WHO are you? (your business profile)
2. HOW much do you need?
3. HOW will you repay the loan?
4. WHAT will happen if you can’t repay the loan?

Tips to improve your chances of getting a loan:

1. Cultivate a relationship before requesting a loan. Consider becoming a deposit customer.
2. Remember Ratios! Calculate the ratios your lender tells you are important.
3. Be visual. Photos, charts, graphs and color will make your proposal stand out.
4. Believe in your plan. If you don’t, your lender certainly won’t.
5. Enlist help — there are many resources out there to assist you with crafting your business plan (see right column). Use them!

3 things lenders are looking for:

1. Good credit score: Your credit report gives the history of how you have managed debt for the past seven years. A good credit score tells a lender that you have the ability to manage and repay a loan.
2. Equity contribution: Sufficient equity contribution shows a lender that you have a commitment to the project and the ability to earn, save, and manage money.
3. Repayment ability: Lenders often analyze financial statements from the past threee years to see if the business has the historic ability to pay debt service. Lender criteria vary however, so you will probably need to show that you have strong profits, good cash managment skills, and growth potential. The need to show historical evidence is why it is harder for a start-up business to obtain a loan. SOURCE: FDIC

4 financial statements to be aware of:

1. Personal Financial Statement (your own personal financial situation)
2. Balance Sheet (a “snapshot” of your business)
3. Income Statement (“report card” for your business over a period of time)
4. Cash Flow Statement (the money coming in, and the money going out)

Understand your financial statements — know them well enough to be able to discuss them with a lender.

Top 10 words of wisdom:

1. Be able to provide a thoroughly researched business plan, including goals, objectives, reasonable timelines and nature of competition.
2. Network with other small business owners and leverage their advice.
3. Leverage business advisory services such as SCORE and local economic development centers.
4. Assemble a strong team of professionals — legal, accounting and banking — and consult early on in the process.
5. Be prepared to discuss “what if” scenarios — everything from “what if business grows more quickly than expected?” to “what if you build and they don’t come?”
6. Debt vs. Equity — lenders avoid having more skin in the game than the business owner.
7. Leverage microfinance resources.
8. Focus on expense assumptions as much as revenue assumptions. For example, if your company wins a contract can it be completed in a profitable manner?
9. In start-up/small business financing, bankers typically review global cash flow analysis. Excessive personal debt can hinder an application, whereas outside recurring income can help an application.