There are a lot of mistakes that first time entrepreneurs can make when making a loan request. The first one is not having that business plan: one of the most important tools a start up entrepreneur can have. It will describe your business and tell the banker what your vision is for your company and where you want to ultimately take your company.

Not being able to articulate that vision is another mistake. Someone might say that they want to be in the automotive business but they don't do a good job of explaining exactly what specialty they actually want to be in. Another is having unrealistic financing expectations. A lot of people come in to a bank and expect the moon. You've got to realize you don't have that track record yet to present to a banker. So you've got to be realistic.

Lastly, you've got to be professional in how you approach the banker. You really do need to be prepared; you need to think it through and perhaps present your business plan to some friends to let them ask questions about it. The more professional you become, the better off you're going to be in that loan application phase.

Partnership is a very popular form of operating entity. What is most important is to think in terms of a business marriage. You're going to be living and working with this person on a daily basis, so you want to have somebody you're compatible with and someone who compliments and perhaps strengthens any weaknesses you have in order to better fulfill the goals of the business.

If you have certain strengths but know that you have certain other areas you're not good at, and you have a proposed partner that maybe strong in those areas, that would be something to consider if you're able to get along and work out the other issues.

I also recommend that potential partnerships investigate whether there are limited liability protections available in your state and also give some thought to what would happened if in fact the partnership fails. Keep in mind that it is just like a business divorce. And you want to have given some thought to that; perhaps have an agreement in writing as to what would happen in that circumstance before you get started.

We welcome your questions to be answered in this Newsletter feature! Here is our Q and A for this edition:

Question:
 
I have been trying to sell my tire and wheel store for over a year. I have two buyers but neither one can get a loan. All the banks in Arkansas want my buyers to get a SBA loan. The SBA wants 3 years of financials. All I have is the past 12 months. One buyer has experience running a tire and wheel store but only has a 550 credit score. The other buyer has no experience but a 660 credit score. They need to borrow 200,000 to 300,000. The store has a gross income of 700,000 a year and a net income of 200,000 a year.
 
Answer:

Here are some thoughts on the sale of your tire and wheel store:

1. Providing your competitive prospects are sustainable and will not face higher hurdles from competitors such as Wal-Mart, the fact you are generating net income of $200,000 per year is a big plus going for you.



2. You have a business with built-in future customers: people must buy tires to operate their cars.



3. Since most people will not pay cash for a business and some financing will be involved, the source of financing could be yourself as the seller. You might consider taking some cash down and let your purchaser pay the rest out of earnings over a period of time. In this approach it would be important that your buyer have experience in the business. (Other things being equal, your potential buyer with tire and wheel store experience might be the best prospect.)



4. It would be of utmost importance in any sale that you retain a good business lawyer to help you structure the conditions and terms of the sale