Clyde Walker had the credentials, but he didn’t have the experience.

A graduate of the former Detroit Engineering Institute in the mid-1980’s, he sought jobs, but found rejection.

“They said, ‘You sound like you know what you’re talking about, but you’re not quite ready,’” recalls Walker.

Still, with determination, he not only found work, he eventually expanded into entrepreneurship. Relying on the support of Bank of America’s small business lending, he launched Walker’s Heating and Cooling 30 years ago. Located at 15921 Eight Mile Road, the company serves various clients, including both residential and commercial buildings. Walker hopes to train interns who can one day work for his business.

“Bank of America has been instrumental in helping us grow, the best bank that we’ve had,” says Walker.

While Walker has enjoyed longevity, there has been a torrent of new businesses opening in Detroit the past few years. For them to remain vital and ultimately flourish, as Walker’s Heating and Cooling, there are several key financing strategies business owners should follow.

As a Michigan entrepreneur you may rely on a variety of sources for capital – such as banks, family, personal savings or even angel investors. Regardless of the financing sources you tap or the stage of your business, securing and accessing capital is likely to play a critical role as you plan for future growth.

According to the Bank of America spring 2017 Small Business Owner Report, more than half of small business owners nationwide are planning to grow their business over the next five years. If you’re among those millions of business owners planning for long-term growth, what should you know about financing that growth?

Below are top strategies for Michigan small businesses to help secure financing, identify resources for capital, and navigate through emotions and financial arrangements when funding is provided by loved ones.

Know the “5 Cs”

To increase your chances of securing funding, planning is essential – and a key component of that preparation is having a general understanding of creditor expectations. While each business is different and has unique financial needs, there are generally “5 Cs” that creditors evaluate when making lending decisions for small businesses: Capacity, Collateral, Capital, Conditions and Character.

• Capacity evaluates whether your business can support debt and expenses. Typically, you need enough cushion to absorb unexpected expenses or a downturn in the economy.
• Collateral can be offered as security for repayment and forfeited in the event of a default. Examples of collateral include accounts receivable, inventory, cash, equipment, and commercial real estate. Creditors may also take into consideration existing debt that your business may still owe on collateral.
• Capital takes a look at whether your business’ assets outweigh its liabilities, and how much capital you and other outside sources have invested.
• Conditions such as the economy, industry trends and pending legislation may be a consideration, although these are often out of your control as an individual small business owner.
• And finally, Character – your own character and the character of those tied closely to the success of your business – is critically important. Factors such as personal integrity, industry experience, and good standing can make a difference.

 Treat every loan as a contract – regardless of the source

When you’re starting out, the financial support you might receive from family and friends can make a big difference in helping to get your business off the ground. However, this can sometimes cause stress and awkwardness for everyone involved. To minimize this, it is important to create a contract for every type of loan you receive – whether it’s a financial agreement with a family member, friend or a bank. It can be immensely helpful to clarify up front with family and friends whether you are receiving a gift versus a loan. If it’s a loan – are they expecting some interest to be paid back? Do you need to pay back the loan within six months, a year, or is there more flexibility? Does your family member or friend want something in return, such as a stake in your business? To avoid unnecessary stress and confusion, it is important to know and write out the full terms of your agreement so you can focus your efforts and energies on making your business successful instead of worrying about misunderstandings.

Take advantage of resources

There are a variety of available resources you can turn to for lending advice, guidance and support – family members, friends, your professional network, financial experts, small business advocates, online content and more. Take advantage of this vast well of knowledge. I also encourage you to meet with a small business banker. They are experts in small business lending and can provide advice about what is best for you and your business, both in the short- and long-term. Even if you are just starting out and don’t think you will qualify for a bank loan, small business bankers can give you guidance on where to turn for capital. They can also help you develop a business plan so you get where you need to be to receive a traditional bank loan.

There is a treasure chest of free online tools and technology that can make life easier for business owners, such the Small Business Administration. You can also turn to Google to search for answers to your questions, but a word of caution – use Google searching as a starting point, and always double check with other reliable sources to make sure you are getting good advice.

Want to learn more about securing the financing you need to grow your business? Check out the Bank of America Small Business Community for tips and information on accessing capital and more.

Contact Drew Piazza at drew.piazza@bankofamerica.com

  Bank of America, Bank of America’s small business lending, business growth in Detroit, Detroit-based business, Drew Piazza, growth capital, Small Shops, Walker’s Heating and Cooling