Need Business Loan Advice!

Business By sweetchef Updated 28 Jan 2006 , 12:13pm by sweetchef

sweetchef Cake Central Cake Decorator Profile
sweetchef Posted 26 Jan 2006 , 8:16am
post #1 of 14

I've been working as a pastry cook for 6 years and owned my own dessert business for 1 year. Now, I'm looking to open my first retail store! The problem is that I can't get a business loan! I've tried several banks and even the Small Business Administration. I have great personal credit, but they still turn me down! Everyone just bases their opinions on my sales numbers, which are very low. (In my first year, it took several months to find any customers. And the tiny church kitchen I share does not have the space or equipment to make the wedding cakes and wholesale orders I need to make large sales--that's why I need the store). I have several letters of reference from wedding planners stating that they will gladly order wedding cakes when I have room to produce them. I know I can make money, but how can I convince the banks? Can anyone think of anything else I can do? I simply can't make any money staying so small, but I'm not ready to give up my dream!

13 replies
Heath Cake Central Cake Decorator Profile
Heath Posted 26 Jan 2006 , 8:56am
post #2 of 14

Generally Banks want to see 3 things:

1. Personal Credit History - (you have this covered)

2. Business Plan - I know you mentioned that you have customers lined up, but have you put together revenue, expense, and growth forcasts for a 5 year time period? Banks like to see that you know how to do this kind of analysis.

3. Personal Investment - Banks are more comfortable the more of your own money you are willing to invest in the venture. When you have little invested, they feel you have little to lose should the business fail. Quite often you need to bring a significant amount of personal funds to the table. (I do not know what percentage in relation to the loan you are seeking, you would have to ask a loan officer about that).

Not sure if that helps you at all....

sweetchef Cake Central Cake Decorator Profile
sweetchef Posted 26 Jan 2006 , 9:20am
post #3 of 14

I've been running my business off my savings for the past year, so my "personal investment" would, unfortunately, be everything! And those savings are running out. I know I need to create a business plan. I'm ashamed to say that I've been flying by the seat of my pants so far. I've made very educated decisions and costed all the recipes and supplies, but the first year's sales have been so do I forcast the future? I've always been an artist more than a financial wiz, so this is my weak point and it shows. I found some websites for business plans and made some charts from my Quickbooks data (sales, profit/loss), but I'd love any suggestions. Maybe there's a way to present the numbers more positively?

ncdessertdiva Cake Central Cake Decorator Profile
ncdessertdiva Posted 26 Jan 2006 , 12:59pm
post #4 of 14

For advice on your business plan check with the local SCORE chapter in your area. They are local retired executives that could help you at no cost. Check with your local community college about a low cost seminar on business plans and seek the advice of the person holding the seminar. Community colleges and the local business community are great sources of FREE information!
Good luck!

cakefairy18 Cake Central Cake Decorator Profile
cakefairy18 Posted 26 Jan 2006 , 2:05pm
post #5 of 14

Ok, I work for a bank and this is what I think...they can't give you the credit b/c you havent had large orders and you don't have any large orders...but if you approach them with something like "I have an order for $xxxxxxx, i need the financing.." I think they would be more willing to consider you, since once they see the agreement, they know the money is good...

So, I would try to get a deal, sell your product first, and once you have an order that you NEED financing for, then approach the bank. I do this all the time so I know how it is...and I went to a seminar about this just yesterday...They're not jsut going to give you the money, thye need to know your going to be good for it, and a contract with another company will show them just that...

Also what Heath said is very important...I hope you have a good business plan, b/c if you don't, they can't take you very seriously

Mac Cake Central Cake Decorator Profile
Mac Posted 26 Jan 2006 , 2:13pm
post #6 of 14

Also, work with an accountant. They can be very helpful when it comes to numbers and business plans. Check local college for business seminar classes--Just completed one that was 1 night a week for 8 weeks at a cost of $99.00 "Starting Your Own Business".

sugartopped Cake Central Cake Decorator Profile
sugartopped Posted 26 Jan 2006 , 2:49pm
post #7 of 14

we've taken out a home equity line of credit on our house. we are using these funds to get the construction done and purschase equipment. but since we are adding an addition to our house so i could work from home...this will work well for us. but we also aren't going to be depending on my decorating income to pay any money i make goes back to payoff the a portion of my wages from my reg. 9-5 job. we will have the loan paid off in about a year this way.

i took a small business workshop in my area and the teacher said alot of people go this route...esp. for small businesses!!!!

JennT Cake Central Cake Decorator Profile
JennT Posted 26 Jan 2006 , 3:11pm
post #8 of 14

Here's some things that might help you when working on a business plan to present to lenders:

All a business plan does is show what you've done in the past and what you project to do in the future & how you plan on getting there. You base your 'futures' on your past sales #'s combined with sales strategies that you plan to take advantage of in order to bring in more business, less operating costs.

Such as (hypothetical, of course): You sold 150 cakes in the year of 2005 with a combined total income of $5,000.00 less your overhead/operating expenses. Then you spell out any advertising or other sales strategies (and their costs) that you intend on using to bring in more business, then also give info about your market to prove that what you plan on doing is 'doable' and from all of that you can estimate how much income it will bring in. Outline all expenses for you to run an operation that is efficient and will allow you to bring in the amount of $$ you're projecting, but also leave room for growth. Add that to the income of 2005 ('cause you know you'll make at least that, right? lol) and then you have a 'projected sales' figure. You should also include a little 'bio' sort of thing, to give some of your history & experience. All of this combined info will give them proof that 1) you're serious about this venture, 2) there's a market for what you're doing, 3) there's at least a high likelihood that you will have no trouble paying the loan payments, 4) that you're a stable person. I'm sure I've left lots of things out & there's probably someone who could word all of this a whole lot better than me. icon_redface.gif But we've been there & done all of this, so I thought I'd share with you.

We own a landscaping business with a projected income of over $170k for 2006, and while we have great credit history, own real estate - the land we live on, the home we live in & 3 rental properties, and 2 waterfront lots on Mobile Bay - have been in business for 4 years, own over $60,000 in landscape equipment and have personal assets more almost triple that, we still haven't been able to get a business loan.... icon_confused.gif And for one reason only - our tax returns for the past 2 years have shown that our income was less than $30,000/year. LOL We actually made almost $75,000 last year....but that's the kicker when you're self-employed. All of the business expenses, etc. deducted from the actual business income only showed a 'profit' of less than 30k. (that seems really wacky to me, but for some reason that's how it worked out) And the way our CPA has advised us to file taxes right now (with our business still being somewhat small) as far as the IRS is concerned, the business & us are one in the whatever the business shows as income is what we pay taxes on. That's great for now, since expenses reduce the income down so much...but next year is going to be a different. I said all of that to say this: Your tax returns can have a big bearing on your 'value' to a bank. If you only show making $10,000 on your return, and you're wanting a business loan for 50 or 100k or more, then they'll never give it to you.

Have you thought about investors? Are there people you know who would be willing to invest in your business or have a small % of ownership in return for their investment, until you are able to pay them back with a little 'return' on their investment? We did this with our business in the beginning & it allowed us to get on our feet. These people made small to large investments...$500 to $5,0000...and we were able to pay them all back, plus a little more, within 1 1/2 years. 2 other people were 'part-owners' and received a dividend (pay check) from us until we were able to pay them back the remainder of their investment plus interest. Just another option for you to consider.

Again...I am no business wiz or CPA or anything like that! lol icon_rolleyes.gif Just someone who owns a business with her husband and has been through all that stuff with the bank. icon_mad.gif I may be wayyy off on some things, and I'm sure someone more knowledgable than me can correct anything I've said that is wrong. But I thought I would share what I know & what we've experienced with starting out business. icon_smile.gif

sugartopped Cake Central Cake Decorator Profile
sugartopped Posted 26 Jan 2006 , 3:22pm
post #9 of 14 are pretty much on course...from the little bit I researced about business loans. One of the reasons we took out the Home Line of Credit. It was enough to get me started....and knew there wasn't any way I would get a loan from bank...not bad credit...but b/c of everything else you stated!!!

Sweetchef....I would look into workshops for starting small businesses that are being held in your area. Usually through a university or community college...we have a few around here. But they provide counseling, workshops, and can help you write your business plan and also offer other avenues that may be open to you. I've found the one my area to be a great resource and very helpful.

sweetchef Cake Central Cake Decorator Profile
sweetchef Posted 27 Jan 2006 , 8:12am
post #10 of 14

Thanks for all the great replies! I had already started a business plan with the current numbers, some goals, and why I need the loan...I get to spend my weekend pounding away at it some more. I don't want to apply again until I find a retail space (it's already taken 3 months and may take several more), but I need to have that info ready to go when I find it. I was recently told by a real estate broker that the landlord may also need to view my business plan before he/she agrees to let me rent (to check that I can make enough to cover the rent)....and I was just worried about the bank! I have to impress the landlord too?!

In answer to your responses: I don't have a house (I wish I did!), so I can't get a home loan. I've thought about investors, but I'm such a control freak that I worry about giving away parts of my company to strangers (most of my good friends are as poor as I am). I may not have a choice. Wish me luck!

Divinekreationz Cake Central Cake Decorator Profile
Divinekreationz Posted 28 Jan 2006 , 1:36am
post #11 of 14

Congratulations on your decsion to be a business owner, now here comes the fun part. As much as we all love what we do and know we are good at it the powers that be can disagree and try to shatter our dreams. The good thing is that we dont have to let them.

My grandmother was in the cake business and I watched her for 15 years. Ironically I didnt choose the cake business first I went floral and now I am moving cakes into my game.

But business is business and here is what I think can help you. Since you are doing this full time you have to remember that there are 1 million people in this business when you approach a bank or investor 2 things have to shine. 1.WHY are you any different from any other person that wants to owns a pastry shop/cakery. You must demostrate the utmost passion for you craft (which I am sure you already have). WHat do you have that the other 50 pastry chefs in a 100 mile radius dont have. This is the key , try to find a niche, try to find your market. Narrow yourself to a craft that makes you different from the rest. I cant say this enough. 2. the passion I am sure you already have. Cakefairy18 is correct , it is easier to sell your business when demand is beating down your door.

In my area here in Dallas, our SCORE is not very helpful. However if you are a woman then try your local womens business center. There are programs out there to help you especially as a woman. Being an entrepenuer in any field can be trying at best. But as long as you believe in your dreams and you are ready to fight for it you will win. I have been in business for 4 years with my florals and I am learning that a good business foundation is your best friend. Get your business plan together, decide on your target market, create a business identity and then present yourself with all of this. Attend local networking meetings, go to the free or cheap sba seminars. Talk to the councelors there. I promise you that I once that the SBA wasnt going to be much help to me and I WAS WRONG. They have been a tremendous help.

Someone made a comment on your personal investment in your business, you are your personal investment, your skill and desire is a great assett. Sometimes banks do want to see that you have yourself planted firmly in the business to take the risk but even still if you are looking for a loan obviously its all been on you to this point.

My next best piece of advice be prepared for the No's and be prepared to keep on fighting because if you dream it , it will come. Stay strong and keep believing.

PS the first thing I learned in my business classes, dont look for a retail space until you have funding and some advice. Some of the greatest small business mistakes are choosing a location without a target market. If you are still working on your business plan, choosing a location is going to be hard. Not to mention if you dont lease it, it could lease before you get funding. Then you will have to start all over again. I noticed you mentioned not having a home and working in a small church kitchen. Try a local kitchen incubator for upcoming business , something else the SBA can help you find.

You are also very smart to think shy of investors, not that you cant have it work but its good to be cautious. If you get investor invest in an attorney who can explain everything to you so you are getting the best deal.

Hope this helps and Good Luck!! icon_biggrin.gif

sweetchef Cake Central Cake Decorator Profile
sweetchef Posted 28 Jan 2006 , 5:46am
post #12 of 14

Wow Divinekreationz, you give a rousing pep-talk! I needed it! I've been giving myself the same talk for months now. Luckily, I've always been very determined and an avid planner. I AM proud of what I've accomplished in the first year (even if the numbers aren't there yet).

I agree about the networking meetings...that's where I get most of my business (women business owners). I've attended soooo many this first year but only joined ABWA.

I originally tried to get the loan before I even began looking for a space, just to see if it was possible. I faced "no" after "no" and sat there as the bankers declared my business a "failure" after less than a year. I knew how far my business had come with pratically no overhead, the reaction to my products, and all the growth potential, so that was VERY hard to hear. But, like you said, I'm not going to let that stop my dream. I know what a huge step this store will be and I'm not entering into it lightly (it's probably the scariest thing I've ever done....because if it doesn't work, it'll be impossible to get out of debt on a cook's salary). I've talked to other chefs, and they all agreed that there's an akward stage where your business has outgrown the small "home business" stage but it's not really big enough for a retail store. I just have to take a leap of faith. It's a risk, but I'll hate myself if I don't try. I know that location is key, so I'm holding out for the best spot (for my clientele) even if it takes a lot longer to find. It's funny you mentioned losing the space...that's what I'm worried about, so I'm deciding on funding now so I can beat other buyers to the punch (the area of town I like is very competitive)!

JennT Cake Central Cake Decorator Profile
JennT Posted 28 Jan 2006 , 6:11am
post #13 of 14

I was thinking about this earlier and wondered this: Have you tried talking to local delicatessens or small restaurants that might like to sell your cakes/cookies/desserts in their shops? The reason I mention this is because wedding cake orders can be seasonal, sort of, or even sporadic, therefore not providing definite, concrete income least in the mind of the banks. But deli's and restaurants who will have standing orders for you for X amount of desserts per week will bring in X amount of $$ gauranteed. That may look more dependable to a bank. Just a thought for ya! icon_smile.gif

sweetchef Cake Central Cake Decorator Profile
sweetchef Posted 28 Jan 2006 , 12:13pm
post #14 of 14

Yes, I found a very famous coffee shop in town that was excited about ordering, but I didn't have the room to store their orders (they want everything frozen and portioned). That's one of the areas I want to expand. I used to bake in hotels, so I'm used to working in volume and making products that freeze would definitely be a good niche for me. I also make client gifts and monthly birthday cakes for businesses around town. I'm trying to build a better base of regular orders, so I can fill in those gaps from seasonal and one-time orders. Now, if you can imagine, I have to make every cake and batch of buttercream one at a time in a 5 qt KitchenAid with no storage for leftovers. Ahhh....the idea of just making large batches once a week and just pulling cakes from the freezer to frost....I miss it so much. I've thought about approaching more small restaurants, but I guess I've been putting it off until I'm SURE that I can handle the storage and prep for a huge order (if I'm lucky enough to get one, I'd hate to say no). Maybe I'm being too careful.

Quote by @%username% on %date%