Loan Readiness Boot Camp Preps Entrepreneurs For Successful Growth

Loan Readiness Boot Camp, Cohort 1 Meets

No one goes into business believing they will fail. But, within the first five years, about half of new businesses do, according to industry data released by the U.S. Small Business Administration. 

A healthy economy relies on the success of small businesses, as they offer employment to about half of private sector workers and generate more than 50% of U.S. sales. Further, their success supports the communities in which they operate by keeping money local, recirculating wages and revenue close to home.

Since new businesses are consistently stymied by key challenges related to finances, Local First Arizona recently launched a new Loan Readiness Boot Camp that prepares entrepreneurs for the lending process by equipping them with informed, real world decision-making strategies.

The first cohort is nearing the end of the initial six-week, virtual program. 

Erika Alexander, a certified financial education instructor and previous graduate of Local First’s We Rise business accelerator program, leads the Loan Readiness Boot Camp. The mission behind the program is to help small business owners improve their chances of approval when it comes to borrowing, secure better interest rates, and understand how to borrow only what they need. 

Among the biggest takeaways is an understanding that there just aren’t any shortcuts to it. Alexander makes sure that the entrepreneurs in her program appreciate that banks are businesses, too. That’s why she begins the program with showing the entrepreneurs involved how banks operate and what they’re looking for. 

“You just expect a bank to feel what you feel about your business,” Alexander said. “They know nothing about you. Absolutely nothing. Banks need business in strategic ways and once you understand that, you understand how to cultivate that relationship and not waste each other’s time.”

Expanding Financial Education

Erika Alexander, Certified Financial Education Instructor

The Loan Readiness Boot Camp includes the involvement of a coalition of select local credit unions that understand the need for financial education designed specifically for small business owners. The proximity of that coalition to the program underscores the importance of local financial relationships with business owners. 

When it comes to the willingness of a financial institution to lend, Alexander makes sure that program participants understand the realities of that relationship, versus what they might hear from friends or see on social media. 

One of those realities is that banks will look at a business owner’s personal finances, even if that individual is looking for business financing and perhaps especially if that individual is seeking business financing for the first time. It’s part of the “5 Cs” that lenders use to evaluate credit worthiness. Those five assessment points include character, capacity, capital, collateral and conditions. 

“This isn’t a vibe. The bank isn’t going to give you a loan on a vibe,” Alexander said. “Your business isn’t about just what the market has proven that it needs, or what you have a passion for. If you want your business to grow and you need funds from a lender, you have to prove it would generate income consistently so they get their loan paid back.”

Alexander takes a deep dive into debt service coverage, explaining how lenders analyze whether or not a loan can be paid back by a borrower. To make the concept more relatable, Alexander compares business lending to that of a typical mortgage. 

Put simply, a bank needs to see that there is enough income to cover the debt. From a business standpoint, that means they need to see an income statement and a cash flow statement. 

“There is no access to capital without showing that,” Alexander said. 

“Somehow, we have the misconception that once you have an LLC and an EIN, that all of a sudden out of the ether decision making will become crystal clear”

Understanding debt service is a critical concept, since many businesses that fail either borrow more than they can pay back or utilize a misaligned lending vehicle — be it a rate that isn’t fair or accessing a loan versus a line of credit. 

Alexander likens business financing to life. Some people are great at it, and others struggle. But just like life, business comes with costs. Finding out how to cover those costs is the key to success. The interactive classes present participants with scenarios that help them take a  deeper look at their own financial practices. 

“This isn’t an entrepreneur thing. It’s a human consumer issue,” Alexander said. “Somehow, we have the misconception that once you have an LLC and an EIN, that all of a sudden out of the ether decision making will become crystal clear.”

The Loan Readiness Boot Camp aims to bring ambiguity into focus. 

“If you’re effective at managing your current assets, how will we know what it will take to scale your business, and if you’re in the position to start down that path?” she said. “That’s what the boot camp is distilling.”

From facilitating relationships with local financial partners to equipping entrepreneurs with a set of tools and resources they need to prepare for borrowing, the six-week course is focused on business growth. And it’s not one of those workshops where participants can dial in and just listen while multitasking. 

“A program like this is invaluable,” she said. “We want people to lock in for six weeks to really learn what it takes to develop financial partners in the local environment and grow those relationships over the long term.”

Alexander said participants need to be engaged to get the most out of the experience, particularly because the scenarios that are discussed are designed to promote self examination. And in the end, loan readiness demonstrates a competence to lenders, which builds trust and creates better alignment on borrowing terms.

“These scenarios are starting to look at your business with a more critical eye as an executive and not just as an operator. It really lights your CFO pilot light,” she said. “The joke I like to tell is, everybody wants to be a CEO. Nobody wants to be a CFO. But how do you know if you’re doing well without looking at the numbers?”

• Learn more about Local First Arizona’s Loan Readiness Boot Camp here