It’s been said over and over again, but newcomers to the industry should realize that they need to develop their own products and services. Commission dealerships are fine to compliment your business if the product is relative to your main product, but everyone should strive for developing their OWN product too.

No one will ever get rich dealing in just commission dealer- ships. And people who think this way will give up over a period of time because they go broke. Let’s stop this madness and spread the word about becoming a Prime Source. How do you develop your own specialized product or service? It may take a few months to get your “feet wet” in mail order to determine your particular “niche.” However, you should already know the talents you possess inside yourself and what your own capabilities are. There has to be more to your business than making money!

What are your hobbies and interests? What would you like to do more than anything else and would you do it if you were not getting paid? For instance, I personally enjoy publishing newsletters. I get a serge of electricity when I am working on them and wish my body would last 24-hours a day so I could work on them all the time. This is loving what you do.

On the other hand, this may sound really crazy to you. Perhaps you would rather write, edit, paste-up or seal envelopes. I remember Dorothy Christian (Shells 345) once explaining to me the “high” she used to get when doing a mass mailing. She loved peeling off labels, sticking them on envelopes and folding the materials to insert. She said that every envelope she stuffed, she felt it would generate a big customer order. This is enthusiasm!

Therefore, Dorothy could have developed a specialized or confidential mailing service. Unlike a big mail where she would be mailing circulars in envelopes, but a targeted-mailing for different programs and products. (Example: A circular selling books and reports would be marketed only to book buyers from lists Dorothy would purchase and use for these types of mailings. She also would be careful not to put any conflicting information in this special mailing she was preparing for specific customers.)

You can take anything you sell and creatively turn it into your own prime source product. A good friend of mine, Helen VanAllen loved to prepare big mails so she created the “Design-Your-Own-Big-Mail-Package.” Customers were presented with a list of the circulars Helen had on hand and they checked off the ones that interested them. This is one example of how an old concept can be turned into something new with a twist that makes it YOUR OWN product.

There are several ideas that other mail order folks used to create their own product. You can use the same concept locally also. If you sell vitamins, for instance, you could sell them in individual packets and label them for each day of the week. Use the vitamins from the company you are working with but the individual packets and labels would be your own product. You can also charge more for this personal touch.

You are unique! You are an individual who has special talents and interests. Your business should be a reflection of YOU and your own contribution to mail order. Mail order is a wonderful business, filled with some of the best people in the world. But it’s up to every one of us to keep it that way.

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One way is to write an article relative to your particular expertise and submit it to all the publications and media dealing in the dissemination of related information. In other words, become your own publicity and sales promotions writer. Get the word out; establish yourself as an expert in your field, and “tag-along” everything you write with a quick note listing your address for a catalog, dealership opportunity, or more information.

Another really good way is by becoming a guest on as many of the radio and television talk shows or interview type programs as possible. Actually, this is much easier to bring about than most people realize. Write a letter to the producer of these programs, then follow up an in-person visit or telephone call. Your initial contact should emphasize that your product or service would be of interest to the listeners or viewers of the program–perhaps even saving them time and money.

Other ways of getting free or very inexpensive exposure include the posting of advertising circulars on all free bulletin boards in your area, especially the coin-operated laundries, grocery stores, and beauty and barber shops. Don’t discount the idea of handing out circulars to all the shoppers in busy shopping centers and malls, especially on weekend. You can also enlist the aid of the middle school students in your area to had out circulars door-to-door.

Some of the more routine methods include having a promotional ad relative to your product or service printed on the front or back of your envelopes at the time you have them printed with your return address.

Be sure to check all the publications that carry the kind of advertising you need. Many mail order publications just getting started offer unusually low rates to first-time advertisers; a free-of-charge insertion of your ad when you pay for an order to run three issues or more; or special seasonal ad space at greatly reduced rates. And there are a number of publications that will give you Per Inquiry (PI) space–arrangement where all orders come in to the publication, they take a commission from each order, and then forward the orders on to you for fulfillment.

Many publications will give you a contract for “” space. In this arrangement you send them your ad, and they hold it until they have unsold space, and then at a price that’s always one third or less the regular price for the space need, insert your ad. Along these lines, be sure to check in with the suburban neighborhood newspapers.

If you send out or publish any kind of catalog or ad sheet, get in touch will all the other publishers and inquire about the possibilities of exchange advertising. They run your ad in their publication in exchange for your running an ad for them of comparable size in yours.

Finally, there’s nothing in the world that beats the low cost and tremendous exposure you get when you advertise a free offer. Simply run an ad offering a free report of interest to most people— a simple one page report with a “tag-line” inviting the readers to send money for more information, with a full page advertisement for your book or other product on the backside. Ask for a self-addressed stamped envelope, and depending on the appeal for your report and circulation of the publication in which your ad appears, you could easily be inundated with responses!

The trick here, of course, is to convert all these responses, or a large percentage of them, into sales. This is done via the “tag-line,” which issues an invitation to the reader to send for more information, and the full page ad on the back of the report, and other offers you include with the complete package you send back to them. As mentioned at the beginning of this report, it’s just a matter of unleashing your imagination. Do that, and you have a powerful force working for you that can help you reach your goals.

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All winning sales letters “talk” to the prospect by creating an image in the mind of the reader. They set “the scene” by appealing to a desire or need; and then they flow smoothly into the “visionary” part of the sales pitch by describing in detail how “wonderful” life will be and, how “good” the prospect is going to feel after he’s purchased your product. This is the “body or guts” of a sales letter.

Overall, a winning sales letter follows a time-tested and proven formula:

1. Get his attention
2. Get him interested in what you can do for him
3. Make him desire the benefits of your product so badly his mouth begins to water
4. Demand action from him – tell him to send for whatever it is you’re selling without delay – any procrastination on his part might cause him to lose out.

This is called the “AIDA” formula and it works.

Sales letters that pull in the most sales are almost always two pages with 1 1/2 spaces between lines. For really big ticket items, they’ll run at least four pages – on an 11 by 17 sheet of paper folded in half. If your sales letter is only two pages in length, there’s nothing wrong with running it on the front and back of one sheet of 8 1/2 by 11 paper. However, your sales letter should always be on letterhead paper – your letterhead printed, and including your logo and business motto if you have one.

Regardless of the length of your sales letter, it should do one thing, and that’s sell, and sell hard! If you intend to close the sale, you’ve got to do it with your sales letter. You should never by “wishy-washy” with your sales letter and expect to close the sale with a color brochure or circular. You do the actual selling and the closing of that sale with your sales letter – any brochure or circular you send along with it will just reinforce what you say in the sales letter.

There’s been a great deal of discussion in the past few years regarding just how long a sales letter should be. A lot of people are asking: Will people really take the time to read a long sales letter. The answer is a simple and time-tested yes indeed! Surveys and tests over the years emphatically prove that “longer sales letters” pull even better than the shorter ones, so don’t worry about the length of your sales letter – just make sure that it sells your product for you!

The “inside secret” is to make your sales letter so interesting, and “visionary” with the benefits you’re offering to the reader, that he can’t resist reading it all the way through. You break up the “work” of reading by using short, punchy sentences, underlining important points you’re trying to make, with the use of subheadlines, indentations and even the use of a second color.

Relative to the brochures and circulars you may want to include with your sales letter to reinforce the sale – providing the materials you’re enclosing are of the best quality, they will generally reinforce the sale for you. But, if they are of poor quality, look cheap and don’t compliment your sales letter, then you shouldn’t be using them. Another thing, it will definitely classify you as an independent homeworker if your hand-stamp your name/address on these brochures or advertising circulars.

Whenever possible, and so long as you have really good brochures to send out, have your printer run them through his press and print your name/address – even your telephone number and company logo – on them before you send them out. The thing is, you want your prospect to think of you as his supplier – the company – and not as just another mail order operator. Sure, you can get by with less expense but you’ll end up with fewer orders and in the end, less profits.

Another thing that’s been bandied about and discussed from every direction for years is whether to use a post office box number or your street address. Generally, it’s best to include both your post office box number, AND, your street address on your sales letter. This kind of open display of your honesty will give you credibility and dispel the thought of you being just another “fly-by-night” mail order company in the mind of your prospect.

Above all else, you’ve got to include some sort of ordering coupon. This coupon has to be as simple and as easy for the prospect to fill out and return to you as you can possible make it. A great many sales are lost because this order coupon is just too complicated for the would-be buyer to follow. Don’t get fancy! Keep it simple, and you’ll find your prospects responding with glee.

Should your or shouldn’t you include a self-addressed reply envelope? There are a lot of variable as well as pro’s and con’s to this question, but overall, when you send out a “winning” sales letter to a good mailing list, a return reply envelope will increase your response tremendously.

Tests of late seem to indicate that it isn’t that big a deal or difference in responses relative to whether you do or don’t pre-stamp the return reply envelope. Again, the decision here will rest primarily on the product you’re selling and the mailing list you’re using. Our recommendation that you experiment – try it both ways – with subsequent mailings and decide for yourself from there.

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The banking industry is an important source of working capital. However, entrepreneurs may not realize that applying for commercial credit is a more customized process than obtaining consumer credit, and requires a great deal of preparation by the business applicant. This brochure may help to de-mystify the process and improve your chances of getting the credit you need.

Types of Loans

Banks and other financial institutions can assist you by providing funds through personal or commercial credit. Examples of personal credit include automobile loans, credit cards, and home mortgages. Commercial credit includes business loans; here are some of the options:

Short-term loans are one of the most common types of business loans and are usually for less than one year. They can provide interim working capital for a business temporarily in need of cash, and are typically repaid in a lump sum when inventory or accounts receivable are converted into cash.

Intermediate-term loans are often used for a business start-up, the purchase of new equipment, expansion, or an increase in working capital. The maturity dates range from one to three years.

Long-term loans generally are made for major capital improvements, acquiring fixed assets, or business start-ups. The term of the loan runs for periods of three to five years and is usually based in pan on the life of the asset financed. Repayment is usually made in monthly or quarterly installments.

A line of credit offers you the ability to borrow money repeatedly, up to your credit limit, without having to reapply. A line of credit is particularly important to businesses that experience seasonal fluctuations. The lender generally will perform a review once a year, at which time the borrower is asked to provide updated financial statements.

The Credit Application Process

Applying for commercial credit can be tedious. It calls for more documentation than you might initially have expected and certainly a lot more than when you apply for consumer credit. For lenders, extending credit to an entrepreneur usually means customizing the loan to suit the credit needs of that business. So don’t be disheartened by the amount of paperwork needed to accompany the application. Instead, be prepared!

Among the best assets you can bring to the lender is a well thought-out and documented business proposal. You need to clearly state the purpose of the loan (will the money be used for temporary working capital, buying equipment, or expanding facilities); the amount of funds needed and for how long; and a repayment schedule. Your business proposal should include the following information:

• business description that tells the nature of the business, describes the product and its market, identifies its customers and competition.
• personal profile that outlines the background and experience of each of the principals in a resume.
• proposal that states the type of loan requested and its purpose.
• business plan that outlines your corporate strategy. for the next three to five years; it will aid you and the lender in determining whether the business will generate the cash flow needed to repay the loan.
• repayment plan that tells how you propose to repay the loan or outlines a repayment schedule. The lender will be expecting you to repay the borrowed funds from the profits produced by the business. As a contingency, you might need to develop a plan on how you would repay the loan if the profits alone turned out to be inadequate.
• supporting documentation will include copies of pertinent papers that support the information contained in your loan proposal–for example, a lease, certificate of incorporation, partnership agreement, letters of reference, contracts, invoices or vendor quotes.
• collateral that you will use to secure the payment of the loan. Collateral can include business and personal assets such as inventory, equipment, and accounts receivable or real estate, stocks, bonds, and automobiles.
• financial statements, both personal and for the business. The business financial statement should be provided for the last three to five years of operation including a year-to-date interim report. It should contain a balance sheet showing business assets and liabilities, and a profit-and-loss statement showing revenues and expenses. The lender uses this information to calculate a debt-to-worth ratio for the business. Be prepared to provide copies of tax returns for the business for this same period.

The personal financial statement should list your assets and your liabilities. Identify the names in which title to each asset is held and its fair market value. You should be prepared to provide copies of your personal tax returns. You may be asked for a list of credit references. Lenders will check your personal as well as your business credit rating.

Lenders will carefully examine your financial statements and business projections. As a borrower, you must be fully prepared to answer questions about them.

• personal guarantees of the owners or other principals usually are required, even from an established business. The lender also may request another party’s guarantee such as a cosigner or a surety, or may request a government guarantee from the U.S. Small Business Administration or other government agency.

In addition to the personal guarantee that you give, under the Equal Credit Opportunity Act the lender is allowed to require another person’s guarantee should your application fail to meet the lender’s standards of creditworthiness. If all or most of the assets listed on your personal financial statement are owned jointly with your spouse, or with someone else, the lender is likely to require such a guarantee, But the lender may not require that your spouse be the guarantor,

In the case of secured credit, the lender is allowed to obtain a spouse’s signature on certain documents when the applicant offers, as security for the loan, property that the two own jointly, In this case, the spouse or other co-owner may be asked to sign documents–such as a mortgage or other security agreement–that would be necessary under applicable state law to make the property available to satisfy the debt.

Sources of Technical Assistance

Before you approach a lender, you might want to seek the advice of another, more experienced “set of eyes” to review your business proposal, particularly if you are a first-time borrower. By doing so, you’d be getting the loan package in shape to make it easier for the lender to reach a favorable credit decision. There are some business support groups whose members could counsel you on how your package looks. A qualified counselor might even discover that you really don’t need more money, and instead suggest better inventory control, improved marketing techniques, or other changes that could actually solve your growth problems. One source of counseling available to small businesses is the Service Corps of Retired Executives (SCORE), which is sponsored by the U.S. Small Business Administration. Others might include accountants and financial advisers.

Once you are satisfied that your proposal is in good shap a lender, set up an appointment to discuss your application. You will find that the lender can also be an excellent source of business and financial counsel.

If Your Application Is Not Approved

Most lenders, banks especially, are conservative in granting business loans. Given the obligation to their stockholders and depositors, they need to be sure there’s a good chance the loans they make will be repaid.

If your application for credit is not approved, find out the reasons why. Some of the reasons that lenders often give for denying a business loan include, for example, insufficient owner’s equity in the business; lack of an established earnings record; a history of slow or past-due trade or loan payments; or insufficient collateral. Finding out the reasons may help you qualify the next time you apply.

The lender will keep you informed about the status of your application. If you are considered a “small business” (when your business revenues are $1 million or less, or when you are applying to start up a business), a lender has 30 days to let you know, either orally or in writing, whether or not you get the loan. The 30-day period begins after the lender has received all of the information needed to evaluate your credit request. If your application is denied, the lender must give you either:

• a written statement of the reasons for denial, or
• a written notice telling you of your right to obtain the reasons in writing. This notice may be given to you during the application process or at the time of the denial.

The lender also will keep for one year the records relating to your application.

Different rules apply for larger businesses (those with more than $1 million in revenues}. Within a reasonable period of time after getting all the necessary information on which to base a decision, the lender must decide and let you know whether or not you get the credit. Then you’ll have 60 days in which to ask for a written statement of the reasons why you were denied credit; this is important to remember because the lender need not notify you of this right. The creditor will keep records of your application for at least 60 days after telling you of the credit decision. If you request that records be kept longer, or ask for a written statement of the reasons for denial, records will be kept for one year.

Equal Credit Opportunity Act

Obtaining credit can be a difficult process for any business owner and especially for first-time borrowers. But keep in mind that different lenders have different standards; if you did not meet the standards of a particular restitution, you may still qualify elsewhere. If you have a full understanding of why the initial lender didn’t approve your application, with time and more attention to these areas, you can improve your proposal as a result and may succeed the next time you apply.

Women and minority applicants may be concerned that they have received less favorable treatment which is unrelated to their creditworthiness. All business applicants have certain protections against unlawful discrimination under the Equal Credit Opportunity Act. The Act makes it illegal for lenders to deny your loan application, discourage you from applying for a loan, or give you less favorable terms than another applicant because you are a woman or a minority group member.

Under the law, a lender may not take factors such as sex, race, national origin, or marital status into account.

In addition, the lender may not ask for information about your spouse unless your spouse has some connection to the business, or unless you are relying on your spouse’s income to support your credit application or relying on alimony, child support, or separate maintenance payments to establish creditworthiness. But the lender may ask you for information about your spouse if you are living in, or you are relying for security on property located in, a community property state (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, or Wisconsin).

Whether your business is large or small, if you are not granted the credit, be sure to discuss any questions you may have with the lender.

If You Need Help

If you are not granted credit by the lender and you believe the lender may have acted unlawfully, you can seek further assistance from the regulatory agency that supervises the institution. A list of some of the agencies is contained in this brochure for your reference. If it becomes necessary to seek legal assistance, the Act provides some remedies. If you have been denied credit because of unlawful discrimination and are able to prove it, courts may award actual damages and in some circumstances may impose punitive damages against the lender. If a lawsuit alleging discrimination is successful, the court also may award court costs and attorney fees.

Federal Enforcement Agencies

All creditors are subject to the Equal Credit Opportunity Act (ECOA) and Regulation B (issued by the Federal Reserve Board), which contains specific rules governing credit transactions. The following is a list of the federal agencies that enforce the ECOA and Regulation B for particular classes of financial institutions. Any questions concerning a particular financial institution should be directed to its enforcement agency.

State Member Banks of the Federal Reserve System Division of Consumer and Community Affairs Board of Governors of the Federal Reserve System 20th & Constitution Avenue, NW Washington, D.C. 20551 (202) 452-3946

Non-Member Federally Insured Banks Office of Consumer Affairs Federal Deposit Insurance Corporation 550 Seventeenth Street, NW Washington, D.C. 20429 (800) 424-5488 (202) 898-3536

National Banks Compliance Management Office of the Comptroller of the Currency 250 E Street, SW Washington, D.C. 20219 (202) 874-4428

Federal Savings Association Consumer Programs Division Office of Thrift Supervision 1700 G Street, NW, Fifth Floor Washington, D.C. 20552 (202) 906-6237

Small Business Investment Companies U.S. Small Business Administration 409 Third Street, SW Washington, D.C. 20416 (202) 205-6751

Federal Credit Unions Office of Consumer Programs National Credit Union Administration 1776 G Street, NW Washington, D.C. 20456 (202) 682-9640

Finance Companies and Other Creditors Not Listed Above Division of Credit Practices Bureau of Consumer Protection Federal Trade Commission Washington, D.C. 20580 (202) 326-3224

Alternative Sources of Capital

The U.S. Small Business Administration (SBA), the federal agency created specifically to assist and counsel small businesses, suggests the following sources of capital in addition to banks:

Friends, Relatives, Individuals Savings and Loan Associations Insurance Companies Finance Companies Mortgage Companies Small Business Investment Companies Venture Capital Firms State Government Financing Sources Pension Funds Government Agencies (such as SBA) Private Foundations

To request additional copies of A Guide to Business Credit for Women, Minorities, and Small Businesses, please send your name, address, and the number of copies requested to Publications Services, Board of Governors of the Federal Reserve System, Washington, D.C. 20551.

FRB 4-100,000-0892-C

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The secret to dealing successfully with banks is to understand their thinking. Busi- ness owners and bankers are natural opponents. They are at opposite ends of the risk – reward continuum. Own- ers are flush with dreams of growth and future riches. Owners just “know” they will be successful, current circumstances notwithstanding. Bankers are professional balloon busters. For them the glass is not half full, it is half empty and likely to go down even further.

A business loan is a risky type of loan for the bank. While the owner’s upside to a loan may be a surge in revenue and profit, the bank’s upside is getting their money back plus a little interest. Business owners who look at things from the bank’s perspective are better prepared to make a solid loan proposal.

Have you ever thought of why you never get a chance to meet with the loan committee? No, it’s not because they are too busy. It’s because the bank doesn’t want non-financial issues like people, personalities and your persuasiveness to cloud the bank’s judgment. Your financial information has to stand alone. Bankers judge you on your financial performance. Period.

No matter what bankers may say, the first thing bankers look at is the annual profit shown on your financial statements. This is the benchmark of your success in their mind. Get your profit as high as you can before you meet with the bank. Recast your earnings to show the bank your maximum earning power. Bankers understand that loans have to be repaid with cash generated from profitable operations.

Bankers want to see specifically what you are going to do with additional funds. Show the bank exactly how you are going to use their money. Explain how you are going to use their money to make more money. Demon- strate to the bank why your use of their money makes good business sense.

Bankers like to loan money when they are convinced your use of their cash will generate more cash for you. Unless you can demonstrate that these borrowed funds will ultimately sow the seeds of additional funds in the form of company profit don’t bother your banker with a loan request.

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While the process can be time consuming, frustrating and intimidating, if you are informed and well prepared, your chances of securing the needed capital are greatly increased.

In putting together a loan package, ask yourself the following basic questions. Answers to them, and the information provided to back up the answers, are essential to the lending decision and the rapidity with which it is made.

1. What is the specific purpose of the loan? Your lender or investor will review your financial requirements among three types of capital acquisition:
   • Working Capital. Used to meet fluctuating needs that will be repaid during the company’s next full operating cycle, generally one year.
   • Growth Capital. Used to meet needs that will be repaid with profits over a several year period (usually not more than seven years). If seeking growth capital, you will be expected to show how the money will be used to increase profits sufficiently to repay the loan in the agreed-upon time frame.
   • Equity Capital. Used to meet permanent needs. Equity capital must be raised from investors who will take a risk in return for some combination of dividend returns, capital gains or a specific share of the business.
2. What amount of financing will support my needs? NOT, how much can I borrow? Have enough existing capital so that, augmented by the loan, the business can operate on a sound financial basis. For new businesses, this includes sufficient resources to withstand start-up expenses and the initial operating phase during which losses are likely to occur. Be able to inject between one-third and one-half of the total capital required. If you plan to borrow equity from friends or relatives, determine what the repayment terms will be.
3. When and for how long will I need these funds? Most of today’s lenders are providing growth capital in the form of asset-based loans, i.e., loans for acquiring land, buildings or equipment which can be used as security. While the majority of these loans carry terms of three to seven years, some may extend over longer periods. For financial planning purposes, the entrepreneur should keep in mind that longer loan periods incur larger overall interest costs.
4. How will I generate sufficient cash flow to repay the loan? Consider the situation from the lender’s point of view: if you were asked to lend someone money, you’d want assurance of being paid back in full, and in a timely manner.
5. What collateral can be utilized, if applicable? Estimate its value, and be ready to provide supporting appraisals.
6. Will the owners provide personal guarantees? Having a comprehensive and well-thought-out business plan is essential in obtaining financing. In fact, without one, even stepping into the bank is pointless. To lenders or potential investors, it not only provides information and reveals your evaluation of your venture’s feasibility, but also reflects your management abilities. An analytical, objective business plan convinces lenders you are cautious, conservative and capable. One that is poorly researched, or makes unsupported assumptions and draws unfounded conclusions, shows you are inexperienced and -in their eyes -reckless. Lenders receive so many proposals that they cannot afford to spend much time evaluating each business plan. That means your plan has only a few minutes to make a good impression, and must speak for itself as a sales tool. One key is to make sure your business plan is as thorough and accurate as possible, and that you can back up all your claims with facts.

The business plan should include:

Executive Summary.

This portion concisely summarizes the key elements of the business plan which follow, and should convince the lender that it is worthwhile to review the plan in detail. Include information about the loan being sought in terms of amount, purpose, duration and how you intend to pay it back.

Company History/Organization/ Management.

Describe the historical development of the business, including legal form of organization, significant changes, subsidiaries and degree of ownership, and the principals and the role they played in the firm’s foundation. Detail their experience and the management and decision-making structure. Also include an organizational chart, and discuss other key personnel and their responsibilities.

Product/Service.

Detail the present or planned product or service lines, including their relative importance (with sales projections, if possible), evaluation (use, quality, performance), competitive advantage and demand.

Market Analysis/Marketing Strategy.

You should be able to estimate how many customers you will have and how near they are to your location, as well as their age, family structure, lifestyle, disposable income and purchasing habits. Explain why your product/service is desirable to them, the scope of your firm’s marketing and selling activities (including pricing policy), and what share of the market you will realistically be able to capture based on the industry analysis that follows.

Industry Analysis (Competition).

It is equally important to know about your field and have a keen sense of the competition. List your major competitors by name and describe how closely located they are, what products/services they provide, what they do better/worse, and how profitable/successful they are. Also elaborate on the industry itself, including an industry outlook, principal markets, industry size and major characteristics. Describe the effects of any major social, economic, technological or regulatory trends.

Production/Operating Plan.

Explain how the firm will perform production or delivery of service in terms of physical facilities, suppliers, labor supply (current and planned), technologies/skills required, manufacturing process (if applicable), and cost breakdown for materials, labor and overhead.

According to George Solomon, Director of Education and Resource Management for the SBA’s Business Development Office, the following items will also be needed to support a loan request:

Sources and Uses of Funds Statement.

The potential lender will require a statement of how you intend to disperse the loan funds. Back up your statement with supporting data. For example, buying a commercial building will require a preliminary title report, an appraisal, an escrow and title insurance, among other documents.

Cash Flow Statement (Budget).

These documents (used for internal planning) project what your business means in terms of dollars, and show cash inflow and outflow over a period of time. If you’ve been in business for some time, worksheets can be compiled from the actual figures of income and expenses of previous years combined with projected changes for the next period. If starting a new business, you will have to project your financial needs and disbursements.

Three-Year Income Projection.

This pro-forma projection only includes income and deductible expenses, while the cash flow statement (above) includes all sources of cash and monies to be paid out. Find out the lender’s specific requirements as to whether income and expenses should be projected on an annual or monthly basis.

Break-Even Analysis.

The break-even point is the point at which a company’s expenses exactly match its sales or service volume, and the firm neither makes a profit nor incurs a loss. It can be calculated in either mathematical or graph form, and expressed in total dollars or revenue exactly offset by total expenses.

Balance Sheet.

This financial statement, usually prepared at the close of an accounting period, shows the financial condition of the business as of a fixed date. By regularly preparing it, you will be able to identify and analyze trends in the financial strength of your firm and thus implement timely modifications.

Income Statement.

In contrast to the balance sheet, this statement shows what has happened to your venture over a period of time, and is an excellent tool for assessing your business. It enables you to identify weaknesses in your operation (such as the timing of an advertising campaign that did not bolster sales as anticipated), and devise more effective ways to run your firm and thereby increase profits. Similarly, you might examine your income statement to see which months have the heaviest sales volume, and plan inventory accordingly. Comparison of income statements from several years will provide an excellent picture of the trends in your business.

As a sole proprietor or principal of a corporation, you may be asked to back up your business loan with personal assets (your house, stocks or bonds). If you’re in a partnership, a personal guarantee must be signed by all principals for repayment of the loan.

It is important to emphasize that businesses with several years of successful operation will find it far easier to obtain financing than start-ups, as lenders will be much more receptive and confident in your ability to repay a loan at that point. In fact, without a strong business plan with realistic expectations and forecasts, managerial experience and collateral, it may be impossible for a new business to get a loan at all. Lenders are always leery of extending financing to new ventures or unproven management teams as they represent a high risk of default.

This doesn’t mean you can’t get a loan as a start-up, but rather that you will have to compensate for the lack of a track record by being strong and well prepared in other areas. Demonstrate by your enthusiasm and the thoroughness of your business plan that you are committed to the venture and that it will succeed. After all, when applying for a loan, you’re selling both yourself and your business.

Scott McCrea, a consultant with Deloitte & Touche’s San Francisco office, advises entrepreneurs to develop and nurture a relationship once credit is granted. He suggests keeping the lender updated on the company’s progress, and staying abreast of the lender’s other products and services that may apply to your business. As the firm grows, you may need to restructure or enhance your credit, and it only makes sense to turn to someone already familiar with, and confident in, your business acumen.

How Banks Evaluate Loan Requests

In putting together the best possible package to secure a business loan, it’s important to know what happens after you leave the bank, and the lending officer evaluates your request.

But first a word of warning from Roger Bel Air, author of How to Borrow Money from a Banker and national lecturer: Banks are in business to lend money and get it repaid -with interest. That’s their number one priority. And several key factors are contributing to heightened cautiousness on their part, including concern about a greater number of business failures and losses in the face of an economic recession, and tougher loan examination policies by federal bank regulators as a result of the savings and loan crisis.

“A banker’s career is based on not making mistakes,” Bel Air stresses. “And determining whether or not the bank will be repaid -the bottom line in any loan decision -is subjective. Beyond the facts and figures alone, banks want to see that the applicant has thoroughly reviewed his options, laid the necessary groundwork for borrowing, and prepared a clearly written and well organized loan application. This is particularly true in today’s credit-tight market as lending officers feel a tightening of the screws from regulators, and uncertainty about the future.”

Another advantage of preparing an effectively organized loan application (including the all-important business plan) is that it will significantly decrease the time spent waiting for an answer. According to John Nelson III, SCORE counselor in Rhode Island and vice president of a major U.S. bank, “in about 80 percent of the cases, the formal request is not complete.” Much of the time spent in approving a loan can be traced to the banker having to ask the potential borrower for more information or for clarification of the information that has already been submitted.

In evaluating loan applications, three C’s of credit are taken into account: character, capacity and collateral.

Character.

Character is actually a check on your financial status and personal credit history, including your previous loan payment record. The theory is that people are creatures of habit -if you have repaid a loan on time before, you will repay this one as well. Conversely, if you have defaulted on a previous loan, the danger is that you’ll tend to default again.

Also considered is experience in the type of business you are trying to finance, including level of responsibility, education and business management training. Lenders are particularly concerned that potential borrowers have a solid understanding of financial record keeping, business credit, the importance of collecting accounts receivable, inventory control and turnover, and marketing their product or service.

If your prior business experience is not relevant to your current venture (for example, if your career has been in the corporate world, and you want to start a restaurant), banks will be leery about your ability to run the new endeavor successfully and thus repay the loan.

Capacity.

Prudent bankers have always looked first to the cash flow of the business as the way the loan will be repaid, which underlines the importance of preparing a cash flow statement with future cash flow projections before presenting your loan request. Doing so indicates to the lender that you are knowledgable about the cash coming into your business and being spent, and therefore better able to avoid a cash shortage that would jeopardize making monthly loan payments.

Collateral.

While cash flow is the primary source of loan repayment, lenders will want a back-up or secondary source as an “exit of last resort” should your business not prove profitable. Collateral -defined as “anything of value used as security for repayment of a debt or performance of a contract” -can be real estate, stocks and bonds, savings account passbooks, equipment, accounts receivable, or the cash value of life insurance policies.

Psychologically, lenders feel that borrowers have more interest in repaying the loan if they know that failure to do so will result in the lender taking possession of whatever has been put up for collateral. A lender will also try to obtain personal guarantees so that if you default on the loan, the institution has access to your personal assets.

It’s important to note that these days, in the wake of severe economic downturns such as that experienced in the Southwest in the mid-1980s, collateral doesn’t carry the weight it used to. As the president of an Oklahoma bank stated, “In Oklahoma City, you can buy a building today for what it cost to rent one eight or nine years ago.” So banks are likely to require more collateral than was previously the case, and evaluate it based on market -rather than replacement -value. Companies without enough collateral to pledge will have to scale back their borrowing needs and make do with less.

One final tip is not to forget “relationship banking.” Once a relationship has been established, and you’ve explained your business operations and anticipated needs, it becomes far easier to approach a banker when a loan is needed. This familiarity will make you more credible than a customer who has not taken the time to introduce himself.

And be sure to stay close to your banker, being open and honest about major changes and significant events -both good and bad. Because your lending officer has to tell your story to other people in the organization (including his superiors), nothing can jinx the relationship faster than a lack of candor. Feeding bankers regular information is, of course, time consuming when you have a company to run. But it’s all part of building credibility and trust, and will enable you to use your banker’s knowledge to help ensure the continued success of your business.

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Via: Bolt Insurance

www.BizOffice.com is the web's leading resource website for small business and home business owners.

Extending credit to your customers may not be on your agenda, but it should be. Risky? Yes. But, it has proven to be an effective method of accruing a large clientele base and of establishing a healthy rapport with customers. Over the past few years, small businesses have reported that extending credit boosts sales up forty to fifty percent.

Maybe extending credit is not such a crazy idea after all.

WHY EXTEND CREDIT?

Extending credit works in your favor in a variety of ways. One, it increases customer loyalty. Taking a financial risk for your customers demonstrates you trust them and are willing to accommodate them. Your clients will appreciate your professional service and respond amicably to this treatment. By garnering customer loyalty, you will have the opportunity to establish long term business relationships.

A credit policy also indicates your business is financially stable. A business in danger of going under does not give its customers the option of paying at a later date. A struggling business demands payments immediately, in order to keep its sinking operation afloat. Customers do not perceive credit-extending businesses to be teetering on the brink of bankruptcy. They know they will receive their goods and services as promised.

Credit policies increase sales for another reason. Some customers are unable to pay for a product or service in its entirety. If customers have the option to pay for items in monthly installments, they will be more inclined to make purchases which do not fall within their current budgets.

Other times, customers want to see if they are fully satisfied with a product before bringing out their checkbooks. Offering a line of credit to these customers gives them the signal you are confident about your product’s quality. Guaranteeing satisfaction makes frugal customers more comfortable with their purchases. Knowing they can return a purchase, cost and hassle-free, they will likely take a risk in ordering it.

We are all familiar with the last reason why extending credit boosts sales: it is human nature to want to keep hard-earned dollars in our possession for as long as possible. When customers do not have to pay bills immediately, they have opportunities to use their money in more profitable ways. Cust- omers will choose to do business with you over other businesses that do not offer comparable payment plans.

DISADVANTAGES

The financial risk associated with extending credit is a big deterrent for small businesses. Some customers order items they cannot afford, some are not satisfied with what they receive and refuse to pay. Undoubt- edly, there will be customers who are tardy with their payments or who do not pay at all. Businesses which extend credit cannot expect to collect all payments.

Other monetary losses are credit bureau fees. When a business extends credit to a customer, it needs access to information regarding a customer’s ability and willingness to pay for ordered items. Credit bureaus meet this need by providing a business with a customer’s payment history, banking record, and yearly income report. Information of this sort unfortunately costs money. However, this expense saves a business money in the long run because credit bureaus identify customers which are financial liabilities.

Another disadvantage of extending credit is time wasted resolving business disputes. Following up on late payments and tracking down delinquent customers are laborious activities which prevent businesses from focusing on more pertinent tasks. Resolving credit disputes can also give rise to expensive legal fees. If disputes are not settled peacefully, some businesses hire collections agencies or sometimes take customers to court.

SHOULD YOU EXTEND CREDIT?

Extending credit is a beneficial activity for your business if you possess a large amount of working capital. Because you will receive delayed payments, cash flow levels will presumably decrease. However, yearly sales revenues may reach unprecedented levels.

Despite the risks involved, extending credit to customers is a sensible sales technique. It increases customer loyalty. It verifies your business’ financial stability. Most importantly, extending credit makes your high quality products and services more marketable. If you have not considered it before, it may be about time.

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This is because of the following:

• It makes your business more trustworthy.
• You can easily get mail and packages sent to your business premises.
• It solidifies your business operations.
• It provides the business privacy.
• It is essential for bank transactions to take place.
• When opening a billing account, say for an electric bill, a mailing address is a requirement.

Many first-time business owners will neglect getting a mailing address, especially if the business is located at home. This is not advisable because it does not give the business the importance it deserves. Additionally, this could bring complications later for the business. So, once you have a name for your business and a location for it, go ahead and get a mailing address. You can do this through the following ways.

• Get a mailing address in person
• Get a mailing address online

You can get a mailing address either from the United States Postal Service (USSPS) or from a private mailing company such as UPS. The former issues post office boxes while the latter will afford you a private mailbox. You can choose which one you prefer though and enjoy the benefits that come with both. These include:

• Your mailing address is the actual street address where your business is situated. This applies with a private mailbox.
• You can collect or receive parcels from other delivery service companies.
• You can find out if you have any parcels or mail by calling or via email and text messages.
• Relocating your business does not interfere with mail delivery.
• How to get a mailing address in person?
• Go to your regional postal office or private mailing company and let them know you would like to apply for a mailing address.
• They will provide you with a form to fill in.
• You need to provide proof of identification, which they will inform you about.
• There is a standard fee you have to pay before your mailing address is activated.
• You will be issued a set of keys for your post office box or private box once everything is confirmed.

How to get a mailing address online?

• Got to the United States postal office web page.
• Under “manage your mail” click on reserve or renew a PO Box.
• Click on the “find a PO Box” icon.
• Pick out a PO Box depending on the size you would like. The sizes range from x-small to x-large.
• Look at their rates and see what charges are within your budget. Make sure you see what other charges are applicable.
• Fill in the form provided online and then submit it.
• Ensure you enter all the details required.
• You can make the necessary payments online as per directions indicated.
• You also have the option of paying at your local post office while collecting your post office box keys. You will need identification so be sure to read and know what to bring with you.

The internet has simplified just about everything one needs to do. If there is anything you do not understand, you can make an enquiry. You can either send an email or have a live chat with someone from the technical support team. Get your business on the right track and get a business mailing address.

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A relatively unknown form of advertising, co-op is a cost-sharing arrangement in which manufacturers and suppliers provide financial assistance for customers’ advertising programs. It can often make the difference in whether or not a small business can afford to advertise at all.

Use It or Lose It

“Co-op advertising is an excellent tool that hasn’t been used enough,” maintains Judy Cerveti, San Francisco co-op manager for Pacific Bell Directory. In fact, the Cooperative Advertising Information System reports that some $25 billion in co-op is available each year, of which only 60 percent is claimed.

“Co-op can be used in every medium – from the Yellow Pages to print ads, radio and TV,” says Cerveti. “It can help you expand your ad- vertising, as well as make the most of your advertising dollars. Some manufacturers are cut- ting back on their programs because they simply are not being used.”

Co-op advertising works in a number of ways. For example, a retailer can buy goods from a manu- facturer and accrue co-op funds based on the amount of purchase. Those funds can be returned in the form of a cash rebate, a credit to the retailer’s account or in products.

“If a beauty salon purchases Matrix products and features Matrix in its advertising, and if it is a registered Matrix dealer, the salon will be eligible for reimbursement in beauty products based on the amount of purchase,” Cerveti explains. “Both Matrix and the salon will benefit. The salon will make a higher profit on those products it re- ceived as reimbursement, and Matrix will receive broader market coverage through the salon’s adver- tising.”

She encourages owners of small businesses to find out if their vendors or manufacturers have co-op programs. “If they don’t, see if they would be willing to sponsor one with you. Tell them, `I purchase $10,000 (or whatever the amount) worth of products from you every month. How about sponsoring my ad?’ Don’t be afraid to ask. There are many manufacturers and distributors who would be very amenable to participating.”

Co-Op from A to Z

In case you’re thinking your firm is too specialized to take advantage of co-op advertising, you may want to reconsider. The Co-op Handbook, published twice a year by the Yellow Pages Publishers Association (YPPA), contains thousands upon thousands of co-op program listings. Indexed by brand name and company, each listing provides the company name, the type of plan it offers, whether mention of competitors is allowed, and the type and size of ads required.

“Air pollution control, adhesives and glue, feed dealers, greenhouse equipment and supplies, fishing tackle, lingerie and optical goods are just a few of the categories in the handbook,” enumerates Jo Kaplan, Pacific Bell Directory’s San Diego co-op manager. “However, the handbook is not available to the general public. If you want to know what co-op programs are offered for your type of business, you should contact your local Yellow Pages sales rep.

“Co-op advertising is growing; we’re seeing more and more in the Yellow Pages. Co-op should be an integral part of every company’s advertis- ing budget – especially during difficult economic times.”

Significant Cost Savings

Jeanette Betancourt, owner of Fandiego fan stores in San Diego, Escondido and Palm Springs, agrees emphatically. “Co-op advertising has worked phenomenally well for me. It pays for half of my advertising. I’m saving thousands of dollars each year.”

Betancourt found out about co-op advertising from the manufacturers with whom she places orders. “When you pick up a line, you are given copies of policies such as freight, minimum purchase, returned goods and co-op advertising. Most national brands have it,” she notes.

“Most of the time, you have to advertise according to their guidelines. For example, some won’t allow you to mention another company in your ad. Others will pay for a percentage of advertising space, so you can run the names of other manufacturers who will pay a percentage as well.”

Patti Barth, co-owner with her husband of the Peninsula Kawasaki motorcycle dealership in San Mateo, California, is a 23-year co-op veteran. “As soon as my husband and his former partner bought the dealership, I discovered that the previous owners hadn’t been doing anything at all with co-op.

“Now we use every cent of it, which saves us thousands of dollars in annual advertising costs. I’m amazed people aren’t aware co-op is there to be used,” Barth adds, “and that they don’t take advantage of it.”

Teaming Up

Manny Perez has teamed his advertising program with Head Sports Inc. for 20 years. Both a tennis pro and pro shop owner, Perez is an avid supporter of co-op advertising.

“Head Sports has been a very important part of my business,” he says enthusiastically. “Beyond the co-op advertising, the company has sponsored promising young players I’ve coached along the way. I also serve on the Head advisory staff, helping new retailers order the equipment they need. And because I’m on the staff, if a customer cannot find a particular model of racquet – perhaps Head doesn’t make it any more – the company will refer the customer to me if I carry the model.

“Co-op should be a small business owner’s first consideration when advertising,” recommends Perez. “Most entrepreneurs think co-op is only for large department stores. But more and more companies are aware of the growing importance of small businesses and want to help them succeed.”

The Scoop on Co-op

No two companies’ co-op advertising plans are exactly alike. They may differ on method of reimbursement, use of logo, whether competitors are allowed, and on prior approval. Each firm also has its own application method.Your sup- pliers may already have provided you with the relevant details. “Nine out of 10 companies send their customers information about using their co-op advertising programs, but many don’t have a clue about co-op so they just file it away,” notes Jo Kaplan, Pacific Bell Direc- tory’s San Diego co-op manager.

But in case you’ve misplaced your supplier’s requirements, here’s a look at a typical co-op program listing as it would appear in the Yellow Pages Publishers Association (YPPA) handbook:

Company Name: Yakkety Yak Answering Machines Co-Op Contact Person: Larry Toksalot Address: 1225 Sputter Lane, Chattynooga, Tennessee Products and Services: Answering machines, dictaphones Classified Heading: Answering Machines — Automatic Trade Names Covered: Patter Promoter, Gabby Haze Type of Plan: Retailer Timing: Calendar year Participation and Accrual: Yakkety Yak will reimburse four percent of all phone machine orders put into stock and invoiced during the approved advertising period. Reimbursement: Check Prior Approval: Yes Ad Requirements: * Competitors not allowed. * Non-competitors but prorated. * Color allowed but not reimbursable. * Logo must be prominently displayed. * Product illustration must appear in ad. Type of Ads Allowed: Display, four-color sections Type of Directories Allowed: Local, Foreign (multi or adjacent) Claim Documentation: Tearsheet; itemized invoice showing name of publication, size of ad, rate and total cost required. Submit within 90 days of publication.

For more information about YPPA listings, call your Yellow Pages sales rep. And to find out if your supplier offers a co-op program, talk to your distributor or contact the company itself.

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