FINANCING YOUR BUSINESS

You will always need money to grow your business. You could grow very slowly, using profits from sales to expand.

Or you can seek financing. Financing will be needed for:

1. Developing and increasing sales in a new market

2. Expanding your plant with new space, new equipment, and increased personnel.

3. Launching a new product line.

If you are new to borrowing money, The Small Business Administration has a start up check list on determining your financing needs and other important basics to get you thinking at http://www.sba.gov/financialassistance/borrowers/resources/basics/index.html.

If the ideas on these pages are new to you, consider yourself lucky that as a member of the Hawaii Food Manufacturers Association you have a great resource in your fellow members who have gone on before you. Come to our regular HFMA meetings as ask fellow members questions during our many networking opportunities.

Where can you get money to grow?

You can get equity capital by finding another owner/partner/investor or you can borrow.

There are several sources of loans for small businesses.

Bank Loans

Banks are required to be highly risk adverse. This means that you will need to have a substantial history of success and have assets that you can pledge to the bank in order to get a loan. It may help to develop a relationship with your banker and maybe even take out a small loan that you pay back easily to establish a successful relationship with your bank.

Hawaii State Dept of Agriculture

The Agricultural Loan Division of the State of Hawaii Department of Agriculture (HDOA) grants loans as a “lender of last resort”. This means that you need to have been already been turned down for a loan by a bank when you apply for the HDOA loan. Minimum qualifications for food manufacturers to obtain an HDOA loan include the requirement that your business have 2 years of manufacturing experience, and you use Hawaii-grown agricultural products as an ingredient in your food product.

You may read more at http://hawaii.gov/hdoa/agl/agl_food.

Wholefoods Local Producer Loan Program

As of 2010, Wholefoods Market had a loan program to local producers. Loans can be for such things as investing in new equipment or converting to organic production.

· Must meet Whole Foods Market’s Quality Standards (http://www.wholefoodsmarket.com/products/quality-standards.php) and standards for animal welfare

· Use funds for expansion and capital expenditures (e.g., buy more animals, invest in new equipment and infrastructure, or expand crops), not operating expenses

· Have a viable business plan and adequate cash flow to service debt

For more information, go to http://www.wholefoodsmarket.com/values/local-producer-details.php.

You apply on line and wait for a local representative to contact you.

U.S. Small Business Administration (SBA)

The SBA guarantees loans made by banks. It does not lend directly. This guarantee makes a loan much more attractive to a bank. The SBA has many different types of loan programs including

· Long-term, fixed-rate financing to acquire fixed assets (such as real estate or equipment) for expansion or modernization.

· Short-term loans for working capital or the purchase of inventory, supplies furniture, or equipment.

· Disaster Assistance Loans to repair or replace property.

· Several other specialty loan programs for veterans, exporters, rural producers, etc.

For more information, see http://www.sba.gov/financialassistance.

Don’t grow yourself into bankruptcy

The curse of too much success and why you need to have more capital or borrowing firmly in place when sales start to take off

Our HFMA members are rightfully concerned about selling more products and being a more effective marketer. But, more than one HFMA member has failed and many have nearly failed because of too much sales without adequate financial planning.

How can that be? Aren’t you making more money when sales go up?

Consider this. You sell $10,000 to a new buyer who will pay you 90 days after taking possession of your product. You must purchase $5,000 in inventory and make that product ($1,000 in direct labor) and pay within 30-days. Where is the $6,000 going to come from to pay your costs? If you have it in the bank and never touch it, great! But what if the order is for $20,000, or, what if your selling efforts are so successful that you get two $20,000 orders. Now you need to come up with $24,000 and fast.

This $24,000 is considered “Working Capital”. And if you expect this new level of sales to continue regularly, you will need that extra $24,000 as long as you are in business. You should finance it with long-term debt, or additional equity capital.

You learn quickly that as long as your business is growing, the more money you need.