Starting an Ice Cream Business: SBA Loans

Starting an Ice Cream Business is a series of articles that answers popular questions asked by our clients and students in regards to starting an ice cream business.

Question: In today's rough economy, is it difficult to get an SBA loan?

In short, no. Under the current federal stimulus package, SBA has changed some important criterion that in the past made it harder to get an SBA loan.
SBA now guarantees 90% of all loans versus 80% two years ago
Collateral requirements are now more flexible
Banks are now paid a fee to process a loan versus them paying a fee two years ago

Below are certain traits and talents that are essential to the success of anyone wishing to own and operate a small business, and hopefully trying to secure a bank loan through the SBA. Every one of these items must be conveyed FACE TO FACE to the lender during your first meeting. The Three Most Important are: 25-35% of capital (cash) needed to fund a business must come from the borrower. A 50-80% guarantee of your personal assets will be asked to collateralize the loan. Passion. If you don't have it and show it to the lender in your personal dealings with him/her, you will never get the loan.

Equally important are the following: In a new venture, it is sometimes difficult to show management experience for the concept category you want to enter, but you can show other management experience from your previous endeavors, and having a good educational background helps a lot.

Also, references from qualified individuals who know you from a past business experience can attest to your expertise.
You must demonstrate that you are farsighted - have the ability to set goals and plan ahead.
You must be an organizer who can develop and establish routines for the efficient execution of plans.
You must be a natural leader who can direct others.
You must be an effective decision-maker.
You must be self-disciplined - able to get things done on time.
You must be a self-starter.
You must be healthy, with the stamina and energy to do everything that the business requires.
You must be able to work with customers.
You must be willing to learn, not be a know-it-all.

You must have a business plan in order to reach first base with a bank or the SBA. A well-formulated business plan serves three important functions:
It serves as a plan of attack- how to get the business started;
It serves as your guideline enabling you to steer the business into a profitable position and then keep it there;
It will help you answer the six basic questions that a lender will ask:
What is your concept?
What sort of person are you?
What are you going to do with the money?
When and how are you going to pay it back?
Does the amount requested make allowances for unexpected developments?
What is the outlook for concept, your line of business?

Start out with a one-page summary that includes the following:
The loan amount requested
How the funds will be used
Method of repayment
Your equity in the project and what collateral you can pledge

A complete business plan includes the following:
What is the concept
Projected profit and loss statement- 7 years
Cash flow projections- Detailed by month the first year, detailed by quarter for second and third year;
Market analysis of the industry
Marketing strategy of your concept
What your concept has to offer that doesn't exist
Management's ability to manage, which includes your resume
Financial information (personal and business)
Cash requirements
How the loan will be paid back

Need help getting a business plan together for your new ice cream endeavor? Ice Cream University offers a business plan creation tool.

Have you gone through the SBA application process recently? Tell us your experience.